There is no protection of personal assets to repay damages or debts. -Income Taxes: As a sole proprietorship, the income flows directly through the business to the owner. This means that any income the business generates is considered income for the individual, and said individual will be responsible to pay taxes as such. Again no difference between business and owner. -Longevity of the organization: No formal documentation is needed to form a sole proprietorship, only a local business license.
Introduction There are many types of organisational structure a business may decide to adopt. This assignment will examine the four main different business structures and present the advantages and disadvantages of each one. The business structures that I will be examining are as follows: The Sole Trader The partnership The Private Limited Company (LTD) The Public Limited Company (PLC) Sole trader A sole trader is an organisation, which is owned by one person. The assets and liabilities of the owner and those of the business are the same. There are no legal or tax distinctions between the owner and business.
He can seize/ignore business opportunities, sell or liquidate the business or even relocate to another place. 4. Profit Retention – All profits of the business are personal income to the sole proprietor. There is no partnership to share profits, and there no shareholders to claim dividends. Other profit in the form of donations, gifts, etc.
Because the business and the owner are legally the same entity there is unlimited liability to the owner to honor all contracts. Also due to the lack of legal separation the business ceases to exist upon the death of the owner. • Liability: The individual whom the business is registered to is completely personally liable because there is no division between the person as an entity and the business as an entity. Legally they are synonymous with one another. • Income Taxes: Monies generated from sales or services rendered are considered normal personal income to the owner and as such, are only taxed once, but are often subject to the highest rate of taxation.
i. Liability: Incase of business debts, the owner is liable personally-unlimited liability. The assets of the business owner can be taken to pay off business debts since the two are not distinct (Dlabay, 2011). This is the major limitation of a sole proprietorship. ii.
The owner has the ability to grow or contact its operation at will with no need to consult with a boss or board of directors most sole proprietorships operate on a small scale, the main factor that distinguishes a sole proprietorship is the sole responsibility of ownership and decisions. DISCUSSION OF THE KEY CHARACTERISTICS 1.LIABILITY: There are no limits on liability with a sole proprietorship, the owner is responsible for all the businesses debts and obligations. The earning power of a sole proprietor can be limited due to lack of capital. The sole proprietor is only able to obtain personal credit to expand the company, the bank will not treat the company as its own entity 2.Income taxes:Income earned by the sole proprietorship is income earned by its owner and is taxed as such 3.Longevity: the sole proprietorship has a limited lifespan once the owner dies or moves on from the sole proprietorship will cease to exist 4.Sole proprietors have complete control over the decision making process. 5.The profits of the company do not have to be shared with anyone, the downside is the liability and loss are also not shared with anyone else.
It is not a legal entity; therefore, it cannot sue or be sued. Creditors must sue the owner and vice versa. There are no formalities necessary when creating a sole proprietorship. By simply not choosing another business form or structure, the person going into business by himself automatically creates a sole proprietorship by default. The business name simply needs to be registered with the state.
However, the business is not considered a separate entity and the sole proprietor is still personally liable for all obligations incurred by the business. Characteristics to keep in mind about Sole Proprietorship 1. Liability There is a lack of protection from personal liabilities, meaning that the personal assets of a sole proprietor is at risk in the event of litigation. If the business fails, any creditor can go after the business assets of the business as well as the personal assets of the owner. 2.
Whilst there are still common law grounds for the protection of an unregistered name, forming a Company is a way to formally register a Business name and therefore notifying the world of a name's existence. Once the Registrar of Companies approves the Company name no other Company can be registered with the identical or near identical name. There is no register for unincorporated bodies such as partnerships or sole traders. Additional name protection can be archived through registering a Trademark or Service Mark with the Commissioner of Trademarks. A Company is a separate legal entity from its shareholders.
With a sole trader, the business is not a separate legal entity. This means that the owner has full liability in his personal capacity for debt of the business in their personal capacity. The owner contributes capital to the business at his own digression and this is means that the capital contribution to the business is limited to the capacity that the owner can contribute capital. The capital is debited to an account call Capital Contribution. The net profit at the end of the year is transferred to the Capital Contribution.