Confused by the different Business Structures?

                           Disclaimer: This publication contains comments of a general nature only, and is provided as an information service.
                          It is not intended to be relied upon as, nor is it a substitute for specific professional advice.

When first setting up a business, one of the very first questions that a business owner is faced with is ‘what business structure should I opt for?’. A seemingly simple answer can have major future implications as each structure has its upsides and downsides. Business people need to acquaint themselves with the options available to them.

1. Sole Trader

A sole trader is the most common business structure that is usually adopted by an individual running his/her own business.

  • Advantages:
    – Unrestrained decision making as you are the sole operator of your business.
    – Cheap to set up and maintain.
    – Flexibility – easy to change to other business structures
    – Undivided profit – you get to keep all that you make
  • Disadvantages:
    – Unlimited liabilities – you are personally responsible for your business legal and financial liabilities
    – Difficulty in raising capital.
    – Harder to take breaks as you are the sole decision-maker.

2. Partnership
A partnership is an association of two or more legal persons to carry on a business in common with a view to profit.

  • Advantages:
    – Access to bigger capital as partners will pool their resources together.
    – Shared decision-making responsibility – the sum is greater than the parts!
    – Cheap and informal to set up – a partnership can be established verbally without costs.
  • Disadvantages:
    – Unlimited liability – all partners are personally responsible for the partnership’s legal/financial liabilities. This may also mean that you may be liable for the other partners’ debts.
    – Conflicts – differences in viewpoints between partners.

3. Company

A proprietary limited company (“company”) involves at least one shareholder and no more than 50 non-employee shareholders.

  • Advantages:
    – Limited liability – a shareholder’s liability is limited to only his shareholding in the company.
    – Transferability – easy to transfer ownership via selling shares.
    – Perpetual succession – testator can leave ownership to their heirs in a will/contract.
    – Tax consideration – corporate tax rate is lower than personal tax rate and more deductibles are allowed.
    – Access to bigger capital through shareholders, bondholders, and more willing lenders.
    – Delegated management – decision-making can be delegated to someone acting as a director.
  • Disadvantages:
    – Establishment and administrative costs.
    – More onerous obligations under public law and corporation law.

 

To find out which structure is the most appropriate for your business, contact us now. Our team of experienced lawyers not only will provide you with advice, but we can also help you set up your business structure and manage the risks that may come with it.