Sole Trader Business and Ownership in Sole Proprietorship Business - Assignment Example

Business Functions Contents Answer 3 Answer 2 4 Answer 3 6 References 8 Answer The different types of business can broadly ified as the unincorporated firms and the incorporated firms. The unincorporated firm can be defined or explained as the firms or the business that is not registered with the companies house and it mainly includes or comprises of the sole trader and the partnership and the incorporated firms can be explained as the businesses or the firms that are registered with the companies house mainly comprises of the private limited company and the public limited company. Sole Trader Business The sole trading business is considered as the simplest form of business structure. And the starting of the sole trading business is very easy and in expensive in nature. There is no legal requirement for starting of the sole trading business and there are very few legal barriers in carrying out the sole trading business which is also considered as the unlimited liability. The income or the profit generated from the business in solely owned by the sole proprietorship and the income tax is charged on the income of the sole proprietor. Partnership Business In case of the partnership business it is required to enter into a partnership agreement with the partners of the business. The partnership business includes the rights and responsibilities of all the partners associated with carrying out the business. The partnership business includes active and the sleeping partners. The active partners of the business are those who actively participate in the business and the sleeping partners are those partners who are concerned with their own share in the business and they do not actively participate in the functioning of the business. The partnership business is a very important aspect in case of the accounting and law. The partnership business does not only mean or refer to as the business that is carried out by two people it can also comprise of thousands of people. Private Limited Company Private limited company can be defined or explained as the business where there is limited liability. In case of the sole trading business the liability of the sole proprietor is unlimited as compared to the private limited company where the liability is limited to the number of shares held by them. The limited company is registered by the company’s house and it also includes various legal documents which is included in the memorandum of association. In case of the private limited company the director of the business is required to prepare annual account. The private limited business can be a family based business or it can be a large business. Public Limited Company The public limited company has shares similar as in case of the private limited company. The difference that exists in case of the public and the private limited company is in case of the public limited company the shares are freely traded on the stock exchange. Therefore the ownership is easily available for everyone who wants to buy the shares. The requirements for the public limited company are that there must be two directors and a qualified company secretary. Answer 2 When analyzing a business the main question that originates is who is the owner of the business. There may be different kinds of ownership of a business and each type of ownership has its peculiar characteristics. Three main types of business based on the ownership are Sole proprietorship, Private limited and Public limited. Ownership in sole proprietorship business In sole proprietorship form of business ownership a business is owned and started by a single person. Such a type of ownership is found only in certain businesses which involve low capital investments and are less risky. In this kind of business all the liabilities are taken up by a single person. This means that in case of a default of the company on its loan obligation the proprietor himself is liable to be sued on behalf of the company for the entire default amount. Since the entire burden of loan is borne by a single person the creditors normally exert extra bit of cautiousness in giving loans to such types of businesses. Example of sole proprietorship business may be found in certain small companies such as a small cloth store owned by a single individual. The owning of the small business by the single individual will mean that the single individual will have to manage for all the capital required for the business. In case of crunch times or recession this will result in a big problem for the sole proprietor as he will find it extremely difficult to gather fund. Ownership in private limited company Unlike sole proprietorship which is owned by a single individual who has unlimited liability, a private limited company is owned by the shareholders of the company. However in this type of company limited no. of shares is issued and these shares are owned by the shareholders of the company who are actually close family members of the company. Since there is more than one shareholder their liability is limited to the no. of shares that they have. That is in this type of company there is limited liability. In fact a private limited company is better than the sole proprietorship in respect of the fact that the liability is not unlimited and is not convergent upon a single individual, it is better than the public limited company because the ownership of the company is not diluted in this case and is retained by the family members. Google before its IPO was a private limited company. Ownership in public limited company In a public limited company just like the private limited company the company is owned by the shareholders of the company. For a company that is public limited the minimum starting capital should be £50,000. A public limited company’s shares can be bought and sold by the general public and the public limited company is normally registered in a stock exchange. The main point of difference of a public limited company from a private limited company lies in the fact that unlike private limited company whose shares are held by the close group of family members or friends for a public limited company the shares may be owned by any member of the general public. Next Plc is a UK based public limited company and has hundreds of stores across UK. The major problem for a public limited company like NEXT is that whenever the management makes a decision it has to ask the permission of all shareholders. Another area of concern is that when a company decides to go public it has to always remain under the scrutiny of the market forces, any bad move and the share prices will be likely to fall. Answer 3 There may be many thoughts to start a business. However, before one actually goes on as an entrepreneur there are many factors that one must take into consideration. The most important question before starting a business is does the person willing to start the start the business really have in him to start a business. A business should not be started only for the fact that one has no other option and it is the last option that remains to earn a descent living. The decision on whether or not to start a business is to be evaluated keeping all factors of risks in mind. After one has decided that one would go to start a new business the next important question to ask is in which field should the business be started? After a solid idea of business has been arrived at the next important step is to analyze the market. The important point is to analyze whether there exists demand for the particular product in the market. The various factors like demand, competition, price, suppliers, customers etc needs to be considered before deciding on whether to start a business. Another important factor in case of new business is the location factor (Emmanuel, 2010). Location of business or industry is considered as an important factor that affects the cost of product and service. The location should be selected based on the consideration of raw materials, skilled personnel, electricity, transportation facility, banking service, other utilities, etc. If care is not exerted in selecting the location of the business then that may have a disastrous impact on the business as a whole. The next important point to consider is the financial aspect. Finance is the life blood of a business and the business must secure the finance area first. The important decision to consider over here is what will be the source of the funds. The entrepreneur must also take into consideration the fact that when the company will be able to achieve break even and when will be the company be able to earn profits. These are very important data to look at even if the company tries to access loans as because the investors of the creditors of the company would like to be assured that their loans will be repaid by the company in times. The other important factor to consider is the government policy and the efficiency of promoter. References Emmanuel, M. 2010. Methodology of business studies. New Delhi: Pearson Education India. Read More