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:
