Advantages & Disadvantages:Types of Businesses

Sole Traders

Advantages

Benefits of operating alone are: all profits are taken by the owner. Consultations are not necessary for decision making and the legal requirements for start-up is very simple as the proprietor only needs to submit the registration documents for the business.

Disadvantages

The sole proprietor must work for long hours resulting in little time for family. There is also limited capital to inject into the business and he alone bears all the risk of the business. He does not have limited liability and therefore if the business goes bankrupt he may lose his personal assets e.g. house and car. There is a lack of expertise in areas of business where he is not knowledgeable which may limit its success.

Partnership

Advantages

Since more than one person is involved, more capital can be raised to inject into the business. There is more expertise and work load is shared. The risk of the business operation is also shared.

Disadvantages

All partners will be affected by the action of each partner since each person represents the business. Decision making may be very slow if partners are not in agreement. There are high risks for partners who do not have limited liability.

Private Limited Liability Company

Advantage

A main advantage of limited liability companies is that their shareholders enjoy limited liability. This type of business is assured continuity of existence as it has several members. Unlike the sole trading business that comes to an end if the owner dies or is very ill.  This firm can access capital for expansion by selling shares.  This business also has privacy as its balance sheet does not have to be published.

Disadvantage

The disadvantage is that they are not easy to start due to the number of legal procedures required.  For the private limited liability company, shares are not easily transferable as other members must agree to have persons join the company. However, shareholders in public liability companies are not restricted to sell their shares to whomever they wish to.

Public Limited Liability Company

Advantages

A main advantage of limited liability companies is that their shareholders enjoy limited liability. This type of business is assured continuity of existence as it has several members. Unlike the sole trading business that comes to an end if the owner dies or is very ill.  This firm can access capital for expansion by selling shares.  Note that these advantages are similar to the private limited company. However, added advantages are that shares are easily transferrable as they may be sold to anyone on the stock market and it provides a means of investment for shareholders who buy shares at low prices and sell when stock prices rise.

Disadvantage

The disadvantage however, are that they are not easy to start due to the number of legal procedures required and that the large size of these businesses tend to be difficult to manage.

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