Outline the various available forms of business structure and outline their respective advantages and disadvantages
Outline the various available forms of business structure and outline their respective advantages and disadvantages.
There are a number of possible business structures and which is the most appropriate will depend on the individual circumstances of the business concerned.
A sole trader is the most straightforward model as there are few formalities in setting up. An individual trades independently under his/her own name. This individual makes all the important decisions, is responsible for paying all of the debts and can employ as many people as he/she wishes. Examples of sole traders are corner shops, coffee shops and carpenters.
The advantages of a sole trader are that decisions can be made quickly, problems are easier to solve and profits are kept by the sole trader due to complete control. This means sole traders tend to hold greater interest and be more hardworking and dedicated, as they are the owner. In this respect, they have close contact with customers and employees. However, complete control also means the sole trader may have difficulty in managing all business functions. When the sole trader dies, so does the business. As mentioned, there are few formalities in setting up. Paperwork is minimal and therefore it is easy to start trading as a sole trader. There are also a number of disadvantages of becoming a sole trader. Firstly, the sole trader is personally liable for all debts that it occurs. This is called unlimited liability. Raising capital could be difficult for one person and there is less capital available for expansion. A possible explanation for this is that a sole trader is taxed at a higher rate than a private company.
A partnership can have between 2 and 20 partners who are also personally liable for the debts of the business, even where this arises from the actions of one of the other partners. Partnerships aim to make a profit and a partnership deed can be used to set out the rights of the partners. There are 3 different types of
There are a number of possible business structures and which is the most appropriate will depend on the individual circumstances of the business concerned.
A sole trader is the most straightforward model as there are few formalities in setting up. An individual trades independently under his/her own name. This individual makes all the important decisions, is responsible for paying all of the debts and can employ as many people as he/she wishes. Examples of sole traders are corner shops, coffee shops and carpenters.
The advantages of a sole trader are that decisions can be made quickly, problems are easier to solve and profits are kept by the sole trader due to complete control. This means sole traders tend to hold greater interest and be more hardworking and dedicated, as they are the owner. In this respect, they have close contact with customers and employees. However, complete control also means the sole trader may have difficulty in managing all business functions. When the sole trader dies, so does the business. As mentioned, there are few formalities in setting up. Paperwork is minimal and therefore it is easy to start trading as a sole trader. There are also a number of disadvantages of becoming a sole trader. Firstly, the sole trader is personally liable for all debts that it occurs. This is called unlimited liability. Raising capital could be difficult for one person and there is less capital available for expansion. A possible explanation for this is that a sole trader is taxed at a higher rate than a private company.
A partnership can have between 2 and 20 partners who are also personally liable for the debts of the business, even where this arises from the actions of one of the other partners. Partnerships aim to make a profit and a partnership deed can be used to set out the rights of the partners. There are 3 different types of