Different Forms of Business: benefits and limitations

Doing business is the major source of employment not only in UK but also all over the world. Most of the employment has been done through business. To start a business, requires money, in accounting term it is called capital.  According to the Office for National Statistics, UK productivity rate is nearly 20 percent which is the lowest comparing the G7 countries and business analysts said that small and medium business will increase productivity (Cicurel, 2015). Business is of various forms such as sole proprietorship, limited company, partnership etc are common in UK. Sole proprietorship and partnership business are easy to start compared to limited company. 

Explanation of the different forms of business units and their benefits and limitations

For starting a new business, the primary concern is selecting the type of legal business that is suitable for the entrepreneur. This understanding is necessary because it will help entrepreneur to determine what business he/she can do and cannot do. Here, some forms of business ownership will discuss.

Sole proprietorship

According to Miller and Jentz (2009), the business which is run by one individual and who is only legal entity for having profits and unlimited liabilities is known as sole proprietorship. It is the easiest form of business organization. Most of the people in the world are engaging in this type of business and it is the highest source of employment. This business is easy to start, operating and maintaining. Today, a large number of online businesses are operating nationwide based on sole proprietorship.

Benefits of sole proprietorship

ü  The major benefit of the business is that the owner of the business solely enjoys the rights of entire business and receives all the profits (BBC, 2015).

ü  Starting a sole proprietorship is easy and less costly and needs very few legal formalities.

ü  The owner of the business can take decision quickly.

ü  At any time owner of the business can transfer or sell the business to another party.

ü  Sole proprietor gives only personal income taxes on the business profits. No additional taxes are required.

Limitations of the sole proprietorship

ü  The major limitation of the business is unlimited liability and bears all losses solely that the business incurs (Truex, 2015).

ü  There has limited scope of raising capital.

ü  The duration of the business is uncertain.

Partnership business

According to Fontana (2010), a partnership business emerges from an express or implied agreement between two or more individuals to carry on a business for making profit. Partnership Act 1980 has defined partnership as an express or implied relation between persons carrying on a business in general with a view of profit (legislation.gov.uk, 2015).

Benefits of partnership business

ü  Setting up a partnership is easy.

ü  This form of business accumulates more capital than sole proprietorship.

ü  New ideas and skills are brought by the partners.

ü  Partners can share duties and responsibilities towards the business.

Limitations of the partnership business

ü  The business incurs unlimited liability. If the business become bankrupt, all the partners are liable to complete their debts even from selling their personal assets (Griffin, 2015).

ü  Disagreement among the partners will hamper the business operations.

ü  Low level of continuity of existence. If a partner becomes bankrupt, or die or resigns, the partnership will dissolve.

Limited company

UK law endorses two major form of limited company; private limited company and public limited company. A limited company is a business organisation that can establish to carry on the business where the liabilities of owners are limited by their investment (Gov.uk, 2015). Limited company holds separate artificial entity.

Benefits of limited company

ü  The main advantage of limited company is that shareholders liability to pay the debt is limited and their personal assets are free from liability.

ü  The continuity of the business is eternal and the die or resign of shareholders cannot dissolve the business.

ü  Limited company has a separate legal entity where the rights and responsibilities of directors and the company are separate.

Limitations of the limited company

ü  It is difficult to start and numbers of steps are being required to complete to carry on the business.

ü  Commercial confidential information sometimes leaked publicly.

ü  Government imposes high level of taxes on the profits of the business. 

References 

Cicurel, D. (2015) How small businesses can engage staff. The Telegraph. [Online] 24^th June. Available from: http://www.telegraph.co.uk/sponsored/business/sme-home/news/11691611/sme-staff-engagement.html [Accessed: 15 November 2015].

Gov.uk (2015) Choose a legal structure for your business. [Online]. Available from: https://www.gov.uk/business-legal-structures/limited-company [Accessed: 16 November 2015].

Miller, R. and Jentz, G. (2009) Fundamentals of Business Law. 2nd Edition. Mason: Cengage Learning.