Wednesday, 22 January 2014

Sole trader, Partnership and Limited Company

What is a Sole Trader?





A sole trader is an individual who sets up and owns their own business. A sole trader cannot distinguish itself from its business i.e. they have no separate legal entity. All the assets and liabilities of the business are the responsibility of the sole trader. This includes that the sole trader receives all the profits and if there is any losses it is their responsibility.


Pros and Cons of a Sole Trader


Pros:

§  Owner gets to keep all the profit.
§  The owner gets to control what way the business will grow.
§  More close and personal to customers.
§  Relatively easy to set up.


Cons:

§  There is unlimited liability.
§  The business might cease to exist if the owner dies or retires.
§  Difficult to compete with larger organisations for tenders.



Partnership

 

 

 


A partnership is two or more parties who do business together in order to make profit. A partnership has no separate legal entity such as a sole trader. The parties of the partnership must bear any losses or debts the company has. The partners also share the profit.




Simon and Garfunkel still singing together after all these years

Pros and Cons of a Partnership

Pros:
§  Relatively easy to set up.
§  Greater depth of knowledge and skills between two or more parties.
§  Losses are shared among the partnership.

Cons:
§  There is unlimited liability.
§  One partner has no full control of the business. May lead to conflict.
§  Decisions more difficult to implement due to partners having different views.


Limited Company

 



There are two types of limited company. A company limited by guarantee and a company limited by shares. A company limited by guarantee has assurances to pay back a certain amount of debts if the company ceases to exist.

A company limited by shares is the most popular type of limited company. This type of company has its own separate legal entity compared to a sole trader or a partnership.

A company limited by shares can be public or private. A public company must have a minimum of seven members. The liability of the members is limited to the amount the members paid for the shares. The value of the share capital must be higher than the minimum of €38,092.

A private company limited by shares is made up of shareholders who own the company. They can also be called members. The amount of members ranges from one member to ninety-nine. The directors are the people who run the company and there minimum number of directors is now one instead of the previous two. There is limited liability where the members can only lose the amount of money the paid for the shares.



Pros and Cons of a Limited Company


Pros:
§  Limited liability.
§  Company is a separate legal entity.
§  Rules of running the company are clearly laid out in the memorandum & articles of association.

Cons:
§  Higher setup costs.
§  More detailed record of accounts required.
§  More legal requirements to follow.


To learn more about the many types of companies, check out this website:

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