The establishment of a business within the UK is a decision that must be considered extensively in order to ensure that the aspiring business entrepreneur minimizes the degree of risk of failure that they are ultimately exposed to. Before a business can be competently founded within the UK, the entrepreneur must ensure that they have carefully reviewed each of the different forms of incorporation that exist and then from there: make a final decision.
The purpose of this article is to consider the relative benefits and drawbacks associated with the reliance upon the sole trader business model and the limited company business model. Please note that this article is intended to provide factual information in as neutral and objective a manner as possible and so it is up to the reader as to which of the two alternatives they feel is most suitable and appropriate for their business.
Definition of a sole trader business entity
In essence, as the name would suggest, a sole trader is a business entity whereby the legal personality of both the business owner and the business entity itself are one and one the same. What this means in practical terms is that the so called “veil of incorporation” (whereby the debts and assets of both the company and the company officers such as the managing director etc.) does not exist.
One of the cornerstone characteristics of a sole trader business entity is that there can only ever be a maximum of one person who has full and absolute control, power and authority over the manner in which the company is controlled and managed.
Benefits and advantages of a sole trader business entity
The establishment of a sole trader business entity is significantly more streamlined and straightforward than the founding of a limited company; meaning that there is a higher degree of accessibility associated with the establishment of a sole trader business entity. In essence then, a sole trader business entity can be competently established by anyone and everyone.
With a sole trader business entity, the business proprietor will be able to enjoy full rights to the profits that they earn, and so will not have the value of their profit margins diluted by virtue of dividends which are payable to shareholders.
Sole trader business entities are not legally bound to disclose salient information within the public realm, meaning that this form of business enterprise will provide the business owner with a higher degree of privacy.
Because a sole trader business entity does not make use of, or provide, shares this means that there is no shareholders which the business proprietor will be held accountable to. As such, this guarantees the highest degree of autonomy and personal freedom for the business owner.
Sole trader business models also enjoy a significantly more reduced and streamlined tax return requirement on an annual basis. For especially small-scale sole trader business entities, the completion and subsequent submission of a self-assessment tax revenue form to Her Majesty’s Revenue and Customs (HMRC) will suffice.
Drawbacks associated with the sole trader business entity
In theory, a sole trader business entity is far more accessible than other forms of companies. However, the actual sources of financing and the acquisition of the necessary start-up capital to establish the business is very limited indeed, and even where the business proprietor is able to acquire such funds, they will face high interest rates.
In the event that the sole trader business entity is not able to settle its outstanding financial obligations to existing creditors, the unpaid creditors can legally pursue the business owner for the recovery of the outstanding balance that still remains delinquent.
The credit rating of the sole trader will be taken into consideration and so this has the potential to adversely and detrimentally affect the price they pay for supplies as well as the options for financing.
Definition of a limited company
A limited company is a form of business entity which will have a business owner and be controlled by shareholders who will be legally entitled to receive an annual dividend from the company dependent upon the performance of the company. One of the most defining features of a limited company is the fact that it enjoys what is known in legal parlance as limited liability, meaning that even if the business itself is bankrupt, creditors cannot competently raise a legal action against the company officers.
Benefits and advantages of a limited company
One of the biggest challenges faced by young and newly-established businesses is the difficulty of raising finance and capital to fund expansion and purchase essential assets. With a limited company, the company will be able to raise additional funds by issuing shares, thereby ensuring that they do not have to acquire money through loans which will have stringent conditions attached to them.
The issuing of shares means that the company will be able to raise cash in a relatively short period of time allowing for a speedy cash injection when the company needs it. When the profits of the company have improved, the company can then proceed to buy back issued shares to drive up the share price, and ensure that the profit margin is not as heavily diluted.
Drawbacks of a limited company
The issuing of shares means that the company will then be required to hold an annual shareholder meeting, and be answerable as well as accountable to the shareholders.
There is a significantly lesser degree of privacy associated with limited companies, and the reason for this is primary rooted in the fact that the company officers will be required to lodge salient information with the Companies House in the UK. This means that pertinent information concerning the business such as profit margins and losses will be visible to the general public as well as competitors. This information can give competitors a tactical advantage over their trading rivals, and pave the way for greenmailing.
The complexity of a limited company means that in order to ensure that the company acts in full accordance with the law, a professional accountancy service must be utilised.
As can be plainly seen from the material thus far, both of these two separate and distinct business models have their own advantages and drawbacks associated with them. It is only the business entrepreneur who wishes to break into the corporate world who will ever be able to truly ascertain which of the two aforementioned models is best suited for their needs.
www.elesclothing.co.uk and www.elesplusclothing.co.uk
Always keeping our trade price wholesale businesses in profit !!!
The purpose of this article is to consider the relative benefits and drawbacks associated with the reliance upon the sole trader business model and the limited company business model. Please note that this article is intended to provide factual information in as neutral and objective a manner as possible and so it is up to the reader as to which of the two alternatives they feel is most suitable and appropriate for their business.
Definition of a sole trader business entity
In essence, as the name would suggest, a sole trader is a business entity whereby the legal personality of both the business owner and the business entity itself are one and one the same. What this means in practical terms is that the so called “veil of incorporation” (whereby the debts and assets of both the company and the company officers such as the managing director etc.) does not exist.
One of the cornerstone characteristics of a sole trader business entity is that there can only ever be a maximum of one person who has full and absolute control, power and authority over the manner in which the company is controlled and managed.
Benefits and advantages of a sole trader business entity
The establishment of a sole trader business entity is significantly more streamlined and straightforward than the founding of a limited company; meaning that there is a higher degree of accessibility associated with the establishment of a sole trader business entity. In essence then, a sole trader business entity can be competently established by anyone and everyone.
With a sole trader business entity, the business proprietor will be able to enjoy full rights to the profits that they earn, and so will not have the value of their profit margins diluted by virtue of dividends which are payable to shareholders.
Sole trader business entities are not legally bound to disclose salient information within the public realm, meaning that this form of business enterprise will provide the business owner with a higher degree of privacy.
Because a sole trader business entity does not make use of, or provide, shares this means that there is no shareholders which the business proprietor will be held accountable to. As such, this guarantees the highest degree of autonomy and personal freedom for the business owner.
Sole trader business models also enjoy a significantly more reduced and streamlined tax return requirement on an annual basis. For especially small-scale sole trader business entities, the completion and subsequent submission of a self-assessment tax revenue form to Her Majesty’s Revenue and Customs (HMRC) will suffice.
Drawbacks associated with the sole trader business entity
In theory, a sole trader business entity is far more accessible than other forms of companies. However, the actual sources of financing and the acquisition of the necessary start-up capital to establish the business is very limited indeed, and even where the business proprietor is able to acquire such funds, they will face high interest rates.
In the event that the sole trader business entity is not able to settle its outstanding financial obligations to existing creditors, the unpaid creditors can legally pursue the business owner for the recovery of the outstanding balance that still remains delinquent.
The credit rating of the sole trader will be taken into consideration and so this has the potential to adversely and detrimentally affect the price they pay for supplies as well as the options for financing.
Definition of a limited company
A limited company is a form of business entity which will have a business owner and be controlled by shareholders who will be legally entitled to receive an annual dividend from the company dependent upon the performance of the company. One of the most defining features of a limited company is the fact that it enjoys what is known in legal parlance as limited liability, meaning that even if the business itself is bankrupt, creditors cannot competently raise a legal action against the company officers.
Benefits and advantages of a limited company
One of the biggest challenges faced by young and newly-established businesses is the difficulty of raising finance and capital to fund expansion and purchase essential assets. With a limited company, the company will be able to raise additional funds by issuing shares, thereby ensuring that they do not have to acquire money through loans which will have stringent conditions attached to them.
The issuing of shares means that the company will be able to raise cash in a relatively short period of time allowing for a speedy cash injection when the company needs it. When the profits of the company have improved, the company can then proceed to buy back issued shares to drive up the share price, and ensure that the profit margin is not as heavily diluted.
Drawbacks of a limited company
The issuing of shares means that the company will then be required to hold an annual shareholder meeting, and be answerable as well as accountable to the shareholders.
There is a significantly lesser degree of privacy associated with limited companies, and the reason for this is primary rooted in the fact that the company officers will be required to lodge salient information with the Companies House in the UK. This means that pertinent information concerning the business such as profit margins and losses will be visible to the general public as well as competitors. This information can give competitors a tactical advantage over their trading rivals, and pave the way for greenmailing.
The complexity of a limited company means that in order to ensure that the company acts in full accordance with the law, a professional accountancy service must be utilised.
As can be plainly seen from the material thus far, both of these two separate and distinct business models have their own advantages and drawbacks associated with them. It is only the business entrepreneur who wishes to break into the corporate world who will ever be able to truly ascertain which of the two aforementioned models is best suited for their needs.
www.elesclothing.co.uk and www.elesplusclothing.co.uk
Always keeping our trade price wholesale businesses in profit !!!
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