Forms of Business Ownership notes

Forms of Business Ownership



Legal and commercial Issues  what to consider when choosing a legal structure:
 Tax which has the least amount of tax to be paid
 Liability and risk  incorporated = limited = protection
 unincorporated = unlimited = lose money, potential bankruptcy
 Name - protecting IP rights
 Desire to grow /obtain external investment or borrow money  incorporated
 Number of people involved
 Desire for privacy  more privacy as unincorporated
 Level of organisational flexibility required


Sole Traders
 Unincorporated
 Most simple, cheap and easy to run form of business ownership.
 Most suitable for 1 person  can employ but this may be risky  most suitable
where risks are relatively low e.q. plumber, electrician, shop owner etc.
 Self-employed  sole trader makes decisions about management and future plans
 own and run the business.
 Lighter regulation regime and no registration requirements -- as long as they follow
any trade/business specific regulations and general employment, health and safety
and taxation laws.
 Personal liability for debts  if the business fails and the debts can't be paid
their house, car etc may be at risk.
 Pay income tax on the profits of the trade.
- Advantages:
 Easy to set up and operate
 Cheaper to set up and operate than a company
 No Filing requirements other than tax returns - not publicly available
 Flexibility
- Disadvantages:
 Unlimited liability  unattractive if a business has lots of risks
 Succession issues  being passed on
 Complete responsibility  if you become ill etc there’s no employees to run the
business

General Partnerships