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Sole Traders, Partnerships and Limited Companies Comparison

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Published: Thu, 04 Jan 2018

ADVANTAGES OF SOLE TRADERS:

  • * Economical and easy to set up a new firm. Not much capital is required.
  • * The sole trader has the total control over its firm. The owner has the, hand-on approach over its business; he doesn’t need to consult with anyone.
  • * The owner being the sole trader, keeps all the profit.
  • * The business dealings are confidential, competitors cannot look into the accounts of the owner.

DISADVANTAGES OF SOLE TRADERS:

  • * Risk of indefinite liability. Incase of any debts, the owner is forced to sell its personal assets.
  • * Sole traders find difficult to enjoy economics of scale.
  • * Since the firms are small, banks will not lend them large sum of money and will be inefficient to use any other long-term finances.
  • * Problem of continuity occurs, if the owner dies or retires.

PARTNERSHIPS: a partnership is an agreement between two or more people to form a business. Profits and losses of a business are shared by each person who contributes money, assets, labour and skill. Example, doctors, dentists etc.

ADVANTAGES OF PARTNERSHIPS:

  • * It brings more flexibility as more people can contribute in the capital
  • * Responsibilities are shared between the partners. It allows for specialization, where one’s strength can complement another’s.
  • * By introducing new partners, expanding becomes easier.
  • * Reduction in risk of losing money, as costs can be shared among partners.

DISADVANTAGES OF PARTNERSHIPS:

* Dispute among the partners, can affect the decision-making process.

* Partnership duration is always uncertain.

  • * Partners are jointly and individually responsible for the debts of firm.
  • * exploitation of resources can be raised among partners.

LIMITED COMPANY: it is a legal entity. All limited companies are incorporated. They can sue or own their assets in their own right. (bbc.co.uk, 2009). It is owned by the shareholders.

ADVANTAGES OF LIMITED COMPANY:

  • * It provides limited liability to shareholders. The shareholders are not individually responsible for firm’s debts.
  • * Despite of deaths, resignations, the company continues.
  • * Name of the company is protected and has supple borrowing powers.
  • * Management interests and obligations are defined. Shareholders and investors are easily assimilated.

DISADVANTAGES OF LIMITED COMPANY:

  • * Possibility of takeover or merger as shares can be bought by anyone.
  • * Disputes between, shareholders and board of directors regarding the interests.
  • * Increase in paper work and different rules.

A budget is a dominant tool that helps a business to take better decisions. It is most efficient tool to direct the cashflows. A budget is planned to

  • * Manage finances.
  • * Assures continuity of funds for current commitments and for future projects.
  • * Enables to make financial decisions.

The basic budget factors that a business should consider are:

  • * Projected cashflow: the cash budget tells about the future cash position on monthly basis.
  • * Projected costs: this includes costs of production, sales and marketing costs, business administration and operation costs, fixed, variable and semi-variable costs. (entrepreneur, 2004)
  • * Projected revenues: sales or revenues calculations are based on amalgamation of business’s sales history. Through this, business can also prepare projected profits for the next 12 months.
  • * Collective profits and losses: each month, profit and losses are added, this total tell when the business will break even and begin earning a profit. (entrepreneur, 2004)

TIM O’ NEIL, the founder of T&T vision would also have considered the points mentioned above, when he started his business.

KEY SOURCES OF FINANCES ARE:

  • * Bank loans and mortgages: suitable for medium-sized firms. Banks can lend large sum of money for a long period of time. Rate of interest is attached to the loans.
  • * Overdrafts: right to be able to withdraw money you do not presently have. Provides flexibility and interest is paid on the amount withdrawn.
  • * Trade credit: it enables the firm to have access to flexible amount of funds for a short duration. High limits and interest are charged on the amount borrowed.
  • * Venture capital: they are set-up to invest in developing countries. They offer capital to help businesses grow.
  • * Lease: it means businesses are paying for the use of a product but do not own it. ( bized.co.uk, 2009)

The Business idea can be café shop can turn into a business proposition. The start-up finance for the business can be sourced out one’s personal assets like money held in banks, home equity loan which is quick and inexpensive for borrowers. Finances can also be arranged through banks, credit cards to setup a franchise. Land can be hired through lease.

BIBLIOGRAPHY

  • (2009).Budgeting and business planning [Internet].Available from: [Last accessed 15 December 2009].
  • Tracy, B. (2004).Drafting Your Budget [Internet].Available from: [Last accessed 15 December 2009]. (2009).
  • Sole traders and partnerships [Internet].Available from: [Last accessed 14 December 2009].
  • (2009).Advantages of a Limited Company [Internet].Available: [Last accessed 14 December 2009].
  • (2009).Public and Private Limited Companies [Internet].Available from: [Last accessed 14 December 2009].
  • (2009).sole trader [Internet].Available from: [Last accessed 14 December 2009].
  • (2009).sources of finance for business [Internet}.Available from: [Last accessed 17 December 2009].

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