Sole Traders
This is the simplest form of business organisation. One individual starts trading
and has thereby formed a sole proprietorship. The owner provides all the capital
and undertakes all the risks.
There are very few legal requirements for this type of business and virtually
no requirement to make publicly available any information. The owner retains
all the profits and likewise, is personally liable for all debts incurred.
Advantages
There are few formalities to setting up and operating as a sole trader. This
helps to keep costs down and profits up.
The sole proprietor can make immediate decisions because he/she does not have
to consult with other parties.
The business belongs to one individual, thus all profits belong to that person.
Disadvantages
If the business fails, the proprietor would not have an income and all debts
would have to be met by the proprietor's personal assets - home or car, for
example.
As a small business, sources of finance may be more difficult to obtain compared
to larger businesses. One consequence of this is that expansion can be difficult.
Partnerships
As far as legal matters go, a partnership in the business sense is the relationship
that subsists between persons carrying on business in common with a view to
profit. A partnership may consist of between two to twenty individuals; however,
certain professional bodies are exempted from this upper limit. (Accountants,
Solicitors and Architects, for example)
To prove the existence of a partnership may be difficult as a "partnership
agreement" could be verbal. There are, however, a few legal requirements
- an example of some of these requirements are as follows:
Business name and partners names must be displayed on the main premises in a
public place (accessible to customers and suppliers).
All invoices, letterheads, orders and receipts must contain business names and
partners' names.
Advantages
There are few formalities to setting up and trading as a partnership.
The financial resources of more than one person are likely to be better than
in a sole proprietorship.
Responsibility can be shared, thus allowing time off.
Disadvantages
Partnerships have unlimited liability, with the exception of Limited Liability
Partnerships.
One troublesome partner could make it difficult for the other partners, and
the action of one of the partners binds the others.
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