Advantages and disadvantages of operating 4 / 6

Advantages of a Limited Company

  • Limited Liability

  • More capital can be raised as no limit on number of shareholders

  • Control of company can not be lost to outsiders – shares only sold if all shareholders agree

  • The business will continue even if one of the owners dies, shares being transferred to another owner – separate legal identity

Disadvantages of a Limited Company

  • Profits have to be shared out amongst a potentially larger number of people

  • Detailed legal procedures must be followed to set up the business – consuming time and money

  • Financial statements have to comply with legal and accounting requirements

  • Financial information can be inspected by any member of the public once filed with the Registrar, including competitors

Advantages of the Sole Trader

  • Personal satisfaction

  • Secrecy

  • Personal Control

  • Enjoyment of all profits

  • Absence of legal formalities when establishing business

  • Financial advantages in terms of low taxes, longer period to pay taxes and lower accountancy fees.

Disadvantages of the Sole Trader

  • Limited sources of finance

  • Restricted growth

  • Full personal responsibility for the decisions and due to unlimited liability the debts of the business

Advantages of a Partnership

  • There are no legal formalities to complete when setting up the business

  • Each partner can specialize

  • Partners can share the workload

  • Financial advantages in terms of low taxes, longer period to pay taxes and lower accountancy fees.

Disadvantages of a Partnership

  • Partners are jointly and severely liable for the acts and omissions of the other partners

  • Profits have to be shared amongst more owners

  • Partners may disagree

  • The size of a partnership is limited to a maximum of 20 partners, however there are exceptions to this general rule

  • Any decision made by one partner on behalf of the company is legally binding on all other partners

  • Partnerships are unincorporated, resulting in unlimited liability for the partners, making them personally liable for the debts of the firm.