Question

Suppose you have some money to invest. You hope that you will start a business with that money. You may or may not involve other partners and you may or may not choose the company structure as the form of your business. Considering the relative advantages and disadvantages of the different legal forms of businesses (i.e. sole trader, partnership or company), which form will you choose for your business and why? What are the advantages and disadvantages you expect due to choosing that specific structure?

The business.gov.au site articulates some practical aspects to consider in choosing the business structure.

Answer 1

If we have to invest certain money in a business and operate it. Out of all the legal forms of businesses, ie. Sole Proprietorship, Partnership or Company, which we choice is "Sole Proprietorship" or "Sole trader" because it is always to start a business at a small level. As the name sugggests, these firms are owned by one person, who performs its day-to-day jobs.

Sole proprietors owns all the assets of the business, assumes all the liabilities and investments. The person also owns the profits generated by the business. The owner have to secure all the necessary licenses, tax identification numbers, and certifications of name.

The related advantages and dis-advantages of the sole proprietorship over the other forms of business organisations are :

Advantages :

(1) Easiest and least expensive form of ownership to organize.

(2) Sole proprietor is in complete control of business and make decisions under the parameters of the law.

(3) Sole proprietors receive all income and profits generated by the business.

(4) Profits from the business are entered and taxed directly through the owner's personal tax return.

(5) The business under the sole proprietorship is easy to dissolve whenever desired.

Disadvantages :

(i) Sole proprietors have unlimited liability and are legally responsibility for all debts.

(ii) Proprietor can raise funds from personal savings or consumer loans.

(iii) Have a hard time while handling employees being alone superviso of the enterprise.

(iv) Federal income tax is being charged at the lower level under the Sole-proprietorship.

(v) The sole proprietor can transfer the business just by the sale of business net assets and do not have face much difficulty in exiting in comparison to other forms like corporation or partnership.

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