The Pros and Cons of Various Orgnizational Structures

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.

This type of business is straightforward to set up and dissolve. It requires the minimal legal requirements and costs. The owner can make all the decisions and can retain all the profits. He owns all the assets of the business.

The owner can draw or invest funds into or out of the business, as he deems necessary.

Business losses can be offset against other income, including claw back of past pay as you earn (PAYE). As the sole trader is self-employed, he is able to defer Income Tax and reduce his National Insurance contributions. The owner’s personal assets can be transferred to a spouse (or any other relative). However, the assets may be required to be returned by the court if it is satisfied that they were transferred to defeat creditors that were owed money.

There is no legal requirement to have the accounts and records audited. No public disclosure of accounts and records is necessary, unless the business is registered for Value Added Tax (VAT). There is no requirement to register for VAT unless the taxable supplies to customers is equal to, or exceeds, the registration level. The registration level is currently £50,000 for a twelve-month period).

The main disadvantage for being a sole trader is the unlimited liability factor. The sole trader is putting at risk his entire personal fortune including his house, car and any other personal assets in his possession that are outside the business. This is because there is no distinction between the individual (the owner) and the business. The law does not recognise the business as an artificial person (unlike a company,) and the business therefore, does not receive the benefits that would be attached if it were. If the business does become bankrupt, the owner may loose his personal fortune to pa...

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...entures to the public. Needs 2 directors and 2 share holders (unless registered before 1st Nov 1929). A member can appoint more than 1 proxy who can vote but can not address meetings. The secretary must be qualified and posses the requisite knowledge and experience. Public scrutiny over accounts aids performance and efficiency. Large market for shares. No restriction on share transfer on stock exchange, USM and AIM but must keep track of who has shares. Encourages investment into company by share ownership by paying dividends. Can be exempt from the statutory requirement to have its year end accounts audited.

Has legal requirement concerning allotted share capital – must be equal or greater than fifty thousand pounds. Can not exercise its borrowing powers or enter business transactions until the registrar has granted it a section 117 certificate. High degree of legislation, rule and formalities it must conform to, e.g. directors retiring at 70 years of age, minimum of 2 directors, voting for directors individually at a general meeting, share allotment. Must publish its accounts in full. Can not give financial assistance to a person to enable him to purchase the companies shares.