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Business Structures Explained

The document discusses different business structures including sole trader, partnership, proprietary limited company, trust company, public company, and incorporated association. For each structure, it provides a brief explanation of what the structure entails and the types of business activities suited to it. It then lists the main advantages and disadvantages of each structure. Finally, it identifies the key factors that will determine the most appropriate business structure for a given situation, such as cost of start-up, control vs responsibility, taxation considerations, financing options, and risk tolerance.

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78 views4 pages

Business Structures Explained

The document discusses different business structures including sole trader, partnership, proprietary limited company, trust company, public company, and incorporated association. For each structure, it provides a brief explanation of what the structure entails and the types of business activities suited to it. It then lists the main advantages and disadvantages of each structure. Finally, it identifies the key factors that will determine the most appropriate business structure for a given situation, such as cost of start-up, control vs responsibility, taxation considerations, financing options, and risk tolerance.

Uploaded by

Eya
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Activity 5 – Determine appropriate business structure

Please provide answers to the following questions:

1. Explain each business structure listed above and the types of business
activities most suited to each.
A sole trader is a business owned by one person. They are usually small in size. Hairdressers,
butchers, and electricians often operate as sole traders. Sole traders rely on their own savings,
bank loans or loans from friends and family to finance their business. A partnership is an
arrangement where parties, known as business partners, agree to cooperate to advance
their mutual interests. The partners in a partnership may be individuals, businesses, interest-
based organizations, schools, governments or combinations. A proprietary limited company is
a private (not public) company that does not sell its shares to the general public and can
have a maximum of 50 shareholders. There is a limit to shareholders' legal responsibility for
company debts. A trust company is a legal entity that acts as a fiduciary, agent, or trustee on
behalf of a person or business for a trust. A trust company is typically tasked with the
administration, management, and the eventual transfer of assets to beneficiaries. A public
company, publicly traded company, publicly held company, publicly listed company, or
public limited company is a company whose ownership is organized via shares of stock which
are intended to be freely traded on a stock exchange or in over-the-counter markets. An
incorporated association is a registered legal entity that's usually established for recreational,
cultural or charitable purposes. It must have at least 5 members and put all profits back into
the association's activities.

2. What are the advantages and disadvantages of each form of business structure?

Business Structures Advantage Disadvantage


Sole Trader Easier processes and fewer Have unlimited liability for
requirements for business taxes. debts as there's no legal
distinction between private
and business assets.
Partnership Sharing the labor. Having a The liability of the partners for
partner may not only make the debts of the business is
you more productive, but it unlimited
may afford you the ease and
flexibility to pursue more
business opportunities.
Proprietary Limited Company No Minimum Capital It restricts the transfer ability of
shares by its articles.

Trust The structure provides more Problems can be encountered


privacy than a company when borrowing due to
additional complexities of loan
structures
Public Company Raising capital through public More regulatory requirements
issue of shares
Incorporated Association Business security and continuity Time-consuming and subject to
double taxation

3. What factors will determine the type of business structure you should use?

 Cost of Start-up
 Control vs. Responsibility
 Profits—to Share or Not to Share
 Taxation
 Entrepreneurial Ability
 Risk Tolerance
 Financing
 Continuity and Transferability

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