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The Advantages and Disadvantages of Each of the Three Forms of Business Structures

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					The Advantages and Disadvantages of Each of the Three Forms of Business Structures

Starting up a company - small or large - is by simply no means a simple feat. Apart from going
through every legalities of getting the correct licenses, you have to make sure that the “legal
structure” you choose to register your company as is the best one.

In general, there are Three forms of company structure you could choose from:

Single proprietorship
Partnership
Propriety Limited Company

Each type of company structure features its own advantages and disadvantages.

Single proprietorship

The sole proprietorship is a business that is owned and manage by just one person known as the
single trader.

Advantages

Easy and inexpensive to build than the proprietary limited business structure
You are in complete power of your business
The whole earnings you're making from a business is yours

Disadvantages

Unlike in a corporation in which you as well as your business are believed as two distinct entities, a
sole trader and the business are believed as one. Which means that your business' financial
obligations are your personal financial obligations too. Come liquidation period, collectors may run
right after your own personal property even if you acquired them before you even established your
business.
Pass on in property to members of the family can be an trouble in the process to your death.

Partnership

In different ways, a partnership is like a single proprietorship, except that there's two or more
owners running the business.

Pros

Still it simple and low-cost to setup, especially when compared to a proprietary limited company
structure
Broader administration structure - more creators means more creative ideas, much more assets,
and many people which will share the potential risks involved

Cons

If a person owner adheres herself into a legally binding contract in part in the partnership, even
without having the knowledge or authorization of the others, ALL shall be certain to that contract
since they each contribute joint ownership.
If a person or a number of associates plan to stop working and bring all of the business' wealth at
their side, the remaining partners remains personally liable towards pay off the absconding partners'
share of accounts.
Partnership can simply end in the case of financial disaster or one partner's death.


Proprietary Limited Company
A proprietary limited company is considered to be a separate legal entity, distinct from it's creators,
investors, and also affiliates.

Advantages

The company is liable by itself.
The risks concerned for each investor are limited simply to what they've invested in the company.
Meaning that just in case of liquidation, collectors cannot chase their particular individual property.
Death of an investors does not necessarily mean the closure of the company

Disadvantages

Expense of registering a company is significantly more than what exactly is sustained from the
formation of a sole proprietorship or partnership.
Complicated set up
Tax rate is much higher when compared to first two business structures
There's a lot more interference with the state administration, and proprietors will be follow
corporation laws and regulations

Company owners which keep the business affairs private commonly select sole proprietorship and
partnership, while small businesses who would like minimal risks and so are aiming to attract lots of
venture capitalists prefer to company formation being proprietary limited company.

				
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posted:7/28/2012
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