Even if you only want to run a small business on your own, you should know something about how businesses generally are organised. There are three most common forms of business organisation:
Sole trader Partnership Company with limited liability
Each of these types of organisation has its advantages and its disadvantages. It is impossible to say which is best, because none is best in all circumstances.
Sole Trader
This is the oldest, simplest and most common form of business organisation. It is also the most straightforward to set up. Basically, the owner or proprietor of the business is the business. Whether you trade under your own name or use a business name such as Garden Designs, you are solely responsible for everything the business does. Being a sole trader does not mean you cannot employ anyone - it simply means that you are the only owner of the business (often called the proprietor). This form of organisation is common in small service businesses of all kinds.
Operating as a sole trader is simple and cheap. It also has the great advantage that all the profits belong to you personally, so if your business does well you can make a lot of money. There are other benefits as well. A sole trader makes all the decisions himself, so this type of business can be very flexible, adapting quickly to changing circumstances. If, for instance, your customers start asking for new products or services, you can make the changes needed to provide them quickly and easily There is no-one to argue with you if you wish to alter the way the business is run. Without doubt, operating as a sole trader can provide great personal satisfaction.
Being a sole trader does have its drawbacks, however. Just as all the profits of the business belong to you, so you personally are responsible for all its debts. If the business cannot pay its creditors, you, the business owner, can be made bankrupt - that is, you may be forced to sell your personal possessions, your house, your car, and so on to pay off the business's debts.
As a sole trader, you are liable not only for what you do, but for what your employees (if you have any) do as well. For instance, if they fail to install or repair an electrical appliance correctly and it causes an injury, you personally may be sued. It is therefore essential that you insure against such mishaps. The business is also heavily dependent on your good health, and you should insure against the possibility of this failing.
Most sole traders operate businesses which do not require substantial amounts of capital (money invested in the business). They largely provide their own money at the beginning. However, when the time comes to expand, the owner may have to borrow in order to increase the assets of the business, and this is where other people may enter the picture.
It is at this stage that one of the other forms of business organisation may be considered, because they make more money available. However, they do involve a reduction in personal control and direction of the enterprise.
Sole trader Partnership Company with limited liability
Each of these types of organisation has its advantages and its disadvantages. It is impossible to say which is best, because none is best in all circumstances.
Sole Trader
This is the oldest, simplest and most common form of business organisation. It is also the most straightforward to set up. Basically, the owner or proprietor of the business is the business. Whether you trade under your own name or use a business name such as Garden Designs, you are solely responsible for everything the business does. Being a sole trader does not mean you cannot employ anyone - it simply means that you are the only owner of the business (often called the proprietor). This form of organisation is common in small service businesses of all kinds.
Operating as a sole trader is simple and cheap. It also has the great advantage that all the profits belong to you personally, so if your business does well you can make a lot of money. There are other benefits as well. A sole trader makes all the decisions himself, so this type of business can be very flexible, adapting quickly to changing circumstances. If, for instance, your customers start asking for new products or services, you can make the changes needed to provide them quickly and easily There is no-one to argue with you if you wish to alter the way the business is run. Without doubt, operating as a sole trader can provide great personal satisfaction.
Being a sole trader does have its drawbacks, however. Just as all the profits of the business belong to you, so you personally are responsible for all its debts. If the business cannot pay its creditors, you, the business owner, can be made bankrupt - that is, you may be forced to sell your personal possessions, your house, your car, and so on to pay off the business's debts.
As a sole trader, you are liable not only for what you do, but for what your employees (if you have any) do as well. For instance, if they fail to install or repair an electrical appliance correctly and it causes an injury, you personally may be sued. It is therefore essential that you insure against such mishaps. The business is also heavily dependent on your good health, and you should insure against the possibility of this failing.
Most sole traders operate businesses which do not require substantial amounts of capital (money invested in the business). They largely provide their own money at the beginning. However, when the time comes to expand, the owner may have to borrow in order to increase the assets of the business, and this is where other people may enter the picture.
It is at this stage that one of the other forms of business organisation may be considered, because they make more money available. However, they do involve a reduction in personal control and direction of the enterprise.
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