THE SOLE TRADER
A sole trader, also known as a sole proprietor or sole proprietorship, is an individual who owns and operates a business on their own. In this business structure, there is no legal distinction between the owner and the business entity. The sole trader is personally responsible for all aspects of the business, including finances, debts, and liabilities.
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As a sole trader, the individual retains all the profits generated by the business but also bears all the risks and losses. They have complete control over decision-making and operations. This type of business structure is commonly found in small businesses, such as freelancers, consultants, independent contractors, and small retail shops.
It’s important to note that being a sole trader does not mean the person is the only employee of the business. They can hire employees to work for the business, but ultimately, they remain the sole owner.
FEATURES OF THE SOLE TRADER
The features of a sole trader, or sole proprietorship, include:
1. Single ownership: A sole trader is owned and operated by a single individual. The business is not a separate legal entity from the owner.
2. Sole responsibility: The sole trader is personally responsible for all aspects of the business, including debts, liabilities, and legal obligations. There is no legal distinction between the owner and the business.
3. Control: The sole trader has complete control over decision-making and operations. They can make all business-related decisions independently.
4. Profits and losses: The sole trader retains all the profits generated by the business. However, they also bear all the risks and losses incurred.
5. Unlimited liability: The owner’s personal assets can be at risk in the event of business debts or legal issues. There is no legal separation between personal and business liabilities.
6. Minimal legal formalities: Compared to other business structures, sole traders have fewer legal formalities to comply with. They typically have fewer regulatory requirements and lower administrative burdens.
7. Taxation: The income earned by a sole trader is generally taxed as personal income. The owner is responsible for reporting business income and expenses on their personal tax return.
8. Limited resources and growth potential: Sole traders may face limitations in terms of available resources, as they rely solely on their personal funds and assets. Expanding the business or raising significant capital can be challenging.
9. Flexibility and autonomy: Sole traders have the flexibility to make quick decisions and change the direction of the business without consulting other partners or shareholders.
10. Privacy: Sole traders often enjoy greater privacy compared to other business structures, as there is no requirement to disclose financial information publicly.
It’s worth noting that the specific features and regulations surrounding sole traders may vary depending on the country or jurisdiction in which the business operates.
ADVANTAGES OF SOLE PROPRIETORSHIP
- It involves small capital.
- It is easy to establish.
- Taking of quick decision.
- It is easy to manage.
- It requires small operation.
- All profits belong to the owner.
- It can thrive in all business environment.
- There is privacy conducting business affairs.
- There is a close relationship between owner and employee.
- There is a close relationship between owner and customers.
DISADVANTAGES OF SOLE PROPRIETORSHIP
- Problem of continuity.
- Inadequate capital.
- He bears all risks alone.
- It has unlimited liability.
- It is not a separate legal entity.
- He leads specialization.
- There is limitation in expansion.
A Partnership is an association of two to twenty persons (or two to ten in the case of banking business), coming together for the purpose of business with a view to making profits.
FEATURES OF A PARTNERSHIP
A partnership is a legal relationship between two or more individuals or entities who agree to collaborate and share resources, responsibilities, profits, and losses in a business venture. The features of a partnership can vary depending on the specific partnership agreement and the jurisdiction in which it operates. However, here are some common features of a partnership:
1. Agreement: Partnerships are based on a mutual agreement between the partners, which can be oral or written. However, it is generally advisable to have a written partnership agreement that outlines the terms and conditions of the partnership.
2. Number of Partners: A partnership typically involves two or more partners. There is no maximum limit on the number of partners, although some jurisdictions may have specific regulations regarding partnerships with a large number of partners.
3. Legal Entity: In most jurisdictions, a partnership is not a separate legal entity distinct from its partners. Instead, the partners individually and collectively own and operate the partnership business. This means that the partners have unlimited personal liability for the partnership’s debts and obligations.
4. Shared Profits and Losses: Partnerships distribute the profits and losses of the business among the partners according to the agreed-upon terms. Typically, this distribution is based on the partners’ capital contributions or as specified in the partnership agreement.
5. Management and Decision-Making: Partnerships allow for shared management and decision-making. Each partner has the right to participate in the management and decision-making processes of the partnership unless otherwise specified in the partnership agreement.
6. Joint and Several Liability: Partners in a partnership have joint and several liability. This means that each partner is individually and collectively responsible for the partnership’s debts and obligations. Creditors can pursue any individual partner for the full amount owed.
7. Unlimited Liability: Partners have unlimited personal liability for the partnership’s debts. This means that if the partnership’s assets are insufficient to cover its obligations, creditors can go after the personal assets of the partners to satisfy the debts.
8. Mutual Agency: Partners in a partnership act as agents for the partnership. This means that each partner can bind the partnership to contractual obligations and business transactions, and the partnership is legally bound by the actions of its partners within the scope of the partnership’s business.
9. Duration and Dissolution: Partnerships can have a specific duration or can be created for an indefinite period. Partnerships can be dissolved by mutual agreement, expiration of the agreed-upon duration, death or bankruptcy of a partner, or other events specified in the partnership agreement or by law.
It is important to note that the specific features and characteristics of a partnership can vary depending on the jurisdiction and the partnership agreement. It is advisable to consult with a legal professional to ensure compliance with local laws and to draft a comprehensive partnership agreement that suits the specific needs and objectives of the partners involved.
ADVANTAGES OF THE PARTNERSHIP
- More capital as a result of pooling of resources.
- Possibility of expansion resulting from increased resources.
- Division of labour/specialization among partners with sense of commitment.
- Better credit-standing as creditors tend to be more confident in partnership than individuals.
- Initiative and contribution of new ideas as each partner gives in his best.
- Shared strain.
- Shared losses.
- Ensured continued success of the business.
- Privacy as regards partners’ accounts.
DISADVANTAGES OF THE PARTNERSHIP
- Unlimited liability.
- Difficulty of dissolution or withdrawal of funds invested in the partnership.
- Disagreement among partners as to who is the boss and on issues concerning the interpretation of partnership deed.
- Death, resignation, retirement or bankruptcy of a partner leads to dissolution of the partnership.
- Difficulty of admitting new partners.
- Difficulty of management as a result of shared control based on collective judgments.
- Limit to size of the business as it is a partnership.
LIMITED LIABILITY COMPANY
A Limited liability company is an association of individuals who contribute money or money’s worth to a common stock and employs it in some trade or business and share the profit or loss arising there from.
TYPES OF COMPANIES
- The private Company and
- The Public Company.
- The Private Company can be formed by not less than two but the maximum must not exceed fifty, excluding past and present employees of the company. A shareholder in a private company is not permitted to transfer his shares without the consent of the company. The company cannot invite the general public to subscribe for shares.
- The Public Company can be formed by at least seven shareholders. There is no maximum limit to the number of shareholders. To successfully achieve incorporation, the promoters must apply to the corporate affair commission Abuja and lodge the required documents with the registrar of companies.
ADVANTAGES OF PRIVATE LIMITED LIABILITY COMPANY
- Large capital.
- It has legal entity.
- Shareholders have limited liability.
- Continuity of existence.
- Efficient Management
- Large profits.
- Possibility of expansion.
DISADVANTAGES OF PRIVATE LIMITED LIABILITY COMPANY
- Limited Capital.
- Shares are not sold to public.
- Shares not easily transferable.
- Lack of privacy.
- Payment of corporate tax.
- Lack of personal contact.
- Delay in decision.
ADVANTAGES OF PUBLIC LIMITED LIABILITY
- Legal entity.
- Perpetual existence.
- Limited Liability.
- Large capital.
- Transferability of shares.
- Loan facilities.
- Economies of large scale production.
- Democracy in management.
- Owners are separated from management.
- Employees can become co-owners.
DISADVANTAGES OF PUBLIC LIMITED LIABILITY
- Lack of privacy.
- Conflict of interest.
- Slow decision making.
- Separation of owners from control.
- Hard to establish.
- Payment of large corporate tax.
- Lack of flexibility.
- Decrease in personal interest.
- Large capital requirement.
- What is statutory corporation?
- State five (5) features of statutory corporation.
- State five each of: (i) Advantages of statutory corporation. (ii) Disadvantages of statutory.
- Define cooperative societies.
- State four (4) types of cooperative societies you know.
- State five (5) each of: (i) Advantages of cooperative societies. (ii) Disadvantages of cooperative societies
- Briefly describe the following
(i) Trade Unions
(ii) Chambers of commerce
(iii) The civil service
(vii) Price rings.