Business Classification - Coursework Example

of Compare and Contrast a Sole Trader and a Public Limited Company Introduction Businesses are classified as either incorporated or unincorporated firms. A sole trader is an example of an unincorporated firm because it is not registered with the house of companies, the company’s government registrar. On the other hand, public limited companies are an example of incorporated firms since they are registered by the house of companies. A sole trader is the simplest type of business and is only owned by one person (Garden 12). A public limited company is complicated because it is owned by many shareholders and hence, it has a large capital base. Virgin enterprises founder, Richard Branson, once said that opportunities in business are like buses, another one is always coming. Then, if these opportunities are like buses, this means that there are many people who want to board them, and will always ask themselves what is the next better opportunity. From there, they will have to make a decision on the type of business they want to venture into. Though the choices may be many, decisions are always hard to make, and this calls for critical analyses of the various business opportunities available. Garden (22) assesses that businessmen should critically analyze the merits and demerits of each opportunity so as to venture into the most profiting opportunity. Features of a Sole Trader A single trader single handedly runs his business and bears all the profits and losses alone. He is the soul and whole of the business. There is usually no one to help him; though he might employ a helper or an assistant. The features that distinguish a sole trader from other business are: he is solely responsible for all business affairs of the entire business. There is also no distinction between the business and the owner in the eyes of law and hence he has unlimited liability (Frank 132). This means that incase of bankruptcy, the owner has to use his own financial reserves and asset to pay lenders and creditors. He is equally liable to pay all legal compensations that may arise while running his business since he cannot defend himself as different from the business. A sole trader is the decision maker of his business and is consequently responsible for the consequences of his decisions. He enjoys all the business profits but shoulders all the losses. Further more, he has to keep financial records that distinguish his business and personal expenses. Finally, a sole trader might be forced to close down if the owner is sick, untimely dies and there is no one to run the business or becomes bankrupt. Features of a Public Limited Company The distinguishing features of a public limited company are; the company is a separate entity from the owners and can have employee (Frank 135). This staffs run the day to day activities of the business as directors, receptionists, secretaries, among others. A public limited company is registered by the house of companies under a certain minimum number of people. The company has a limited liability, and this means that the owners are not responsible to pay any debts by their personal assets incase the company becomes bankrupt. The shareholders share profits and losses, depending on the number of shares one owns. The starting capital for the company is realized by issuing share to members of the general public. Employees are also not responsible to pay any lenders or creditor if the company becomes bankrupt. Garden (23) outlines that Incase of any wrong doings, the case is filed against the company but if the directors are responsible for the wrongs committed, a case if filed in the court of law against them. Profits are distributed among share holders as dividends, or can be used for expansion of the business. Directors, together with shareholders make all decisions concerning the company during the annual general meetings which are held annually to discuss growth plans and future company strategies. Contrast between a Sole Trader and a Public Limited Company The main difference between a sole trader and a public limited company is that there is no difference between a sole trader and his business according to the law but in a public limited company, the shareholders are a separate entity from the company. On the other hand, according to Clayton (41), a sole trader has unlimited liability while a public limited company has limited liability, and therefore the owners are not responsible for any debts incurred by the company incase of bankruptcy. Additionally, a sole trade is owned and run by one person only while a public limited company is owned by many people, according to the law requirements of minimum members of various countries. When it comes to decision making, a sole trader makes his own decisions, and is therefore liable for all the consequences of such decisions (Clayton 47). However, for a public limited company, the decisions are made by directors in consultation with the shareholders and hence, consequences of such decisions are bored by the company. To illustrate this, let’s take an example of a sole trader, who is a baker, who makes a decision to start baking a type of bread that he thins will penetrate the market. If he bakes the breads, high demand for the bread will be a great benefit to him while lack of market for the bread will leave him bearing all the losses alone. However, if this was a public limited company, the profits and losses could have been equally shared among all the shareholders. A sole trade business is owned by one person, and this means that incase the person dies, the business will be forced to close down if there is no one to run it (Frank). Contrary, a public company cannot close down because of the death of one shareholder or director, that is, it has a perpetual existence. Another contrasting feature is that a sole trader has to raise all the capital required to start the business, while in a public limited company, the capital required is raised by issuing shares to members of the public and this ensures that capital is not a limiting factor like in a sole trade. Comparisons between a sole trader and a public limited company The main similarity between a sole trader and a public limited company is that both businesses must keep financial records in order to monitor and manage all business activities so as to ensure profits and prevent losses. On the other hand, the two business opportunities face competition from their rivals and hence can incur profits or losses in each trading period. They also require capital to start running, although a sole trade requires less capital than a public limited company. The two companies must also be managed professionally to ensure future prospects and reputation. The modes and types of transport and travel around the world where sole traders may be found are in road for example public transport vehicles and taxi cabs, buses. There are also traders in the airline like the virgin airlines, which is owned by one person, Richard Branson. However, most of water transport is owned by private and public limited companies since it requires very heavy capital base to start and operate.   Sole Traders in Transport Industry The modes and types of transport and travel around the world where sole traders may be found are in road for example public transport vehicles and taxi cabs, buses. There are also traders in the airline like the virgin airlines, which is owned by one person, Richard Branson. However, most of water transport is owned by private and public limited companies since it requires very heavy capital base to start and operate. The modes and types of transport and travel around the world where sole traders may be found are in road for example public transport vehicles taxi cabs, and buses. There are also traders in the airline industry like the virgin airlines, which is owned by one person, Richard Branson. However, most of water transport is owned by private and public limited companies since it requires very heavy capital base to start and operate.  Sole trade business has a lot of disadvantages that threaten the daily operations of a sole trade. Therefore, the sole trader has to take strategic actions that will help curb such disadvantages. The trader may opt to insure the business so as to be compensated incase of losses, thus saving his personal assets incase of bankruptcy. On the other hand, they can involve financial and business advising firms to help them make decisions that will help them achieve their goals and avoid negative consequences. They can also imitate other successful sole traders and ask for advice from them. Additionally, they can borrow money from financial institutions like banks in order to strengthen their financial base. In addition, they may engage insurance companies which will compensate them in case they face certain losses against which they are insured. Work Cited Frank, Ernest Perry. Laws and Practice Relating to Businesses. (5TH edn). Great Britain, Richard Clay Printers. 1987. Garden, John. Business for intermediate GNVQ. (2ND edn). Delta Place, Stanley Thorne’s Publishers. 2000. Clayton, Patricia. Laws for the Small Business: An Essential Guide to all the Legal Businesses. Great Britain, Thanet Press Limited, Margate. 2007. Read More