Limited - incompatibility between a Sole Trader and a minute firm
Hi friends. Today, I learned about Limited - incompatibility between a Sole Trader and a minute firm. Which may be very helpful in my opinion so you.incompatibility between a Sole Trader and a minute firm
"Business opportunities are like buses, there's all the time an additional one one coming."
- Richard Branson, founder of Virgin Enterprises
Limited
If enterprise opportunities are like bus, then be sure that there will be many who will want to board the buses. They will also face the eternal request 'What next'? The next step is to select the type of business. The choices are many and the decision, well, as usual, all the time difficult to make.
Before opting for any type of business, it will augur well, if you understand the discrepancy between each of the options.
Sole trader:
Sole trader is a man who carries out the trade/ enterprise single handedly. He is the whole and soul of the business. Usually, there is no one to support him; though in some cases he might keep an assistant or a helper.
The following are the distinguishing features of a sole trader:
1) He is responsible for the whole business. He is responsible for all the affairs pertaining to the business.
2) The law does not make any discrepancy between the owner and his business. In the eyes of the law, both the owner and his enterprise are the same.
3) Since the law does not distinguish between the owner and his business, his liability is unlimited. For e.g. If the enterprise goes bankrupt, the owner will have to cough money from his own assets and financial reserves to pay to the creditors and lenders.
4) The sole trader is also liable to pay for any legal payment that might arise in the policy of running the business. He cannot shrug his responsibilities. He will not be able to defend himself by saying that the act was committed by his enterprise and not by him.
5) The sole trader has the final say as far as decision-making is concerned. He is not legally bound to listen to anyone. He may do whatever he deems to be fit.
6) Since he has the free time to take all the decisions, he is also responsible for them. For e.g., There is a bread manufacturer, [who is also a sole trader], who introduces a new variety of bread, thinking that there is request for this single variety. If the stock succeeds, he can take the credit. If the stock fails and as a consequence he suffers losses, then he will be held for the losses. The buck starts as well as stops with him.
7) He keeps the whole profit earned by him. Similarly he also has to shoulder the whole burden of loss.
8) A sole trader has to vocalize financial records that distinguish between money used for personal and enterprise purpose. For e.g. If he sends a letter to his wife, the postal expenditure will be treated as personal. But if a letter is sent to a prospective customer, it will be treated as expenditure incurred for enterprise purpose.
9) A sole entity might come to an end if the owner becomes bankrupt or has an untimely demise, with no one to look after the business.
Limited company:
A dinky enterprise is a cut off entity and is also either registered or incorporated under the laws of the country in which it is situated. It is a cut off man in the eyes of the law.
The following are the distinguishing features of a dinky company:
1) Since a dinky enterprise is a cut off person, it can hire 'employees'. These employees are responsible for running of the company. These employees can be the directors of the company, the secretary as well as the staff including the receptionist!
2) For setting up a dinky company, most of the countries need registration. Some countries also specify the minimum number of citizen that are required to start a dinky company.
3) The laws of roughly all the countries specify the use of the word 'limited ' or 'ltd' after the name of the company.
4) The finance for beginning a dinky enterprise is raised by issuing shares. The citizen to whom the shares are issued are termed as shareholders. The shares cannot be issued to the normal communal unless it is a communal dinky company.
5) The liability of the shareholders is dinky to the number paid by them while the buy of the shares. For e.g. If the enterprise goes into debts, they are not liable to pay to the lenders and creditors from their own personal finance.
6) Similarly even the directors and other staffs are not responsible to pay. This is because the enterprise is a cut off entity.
7) The directors are responsible for the condition of the enterprise as well as its day-to-day affairs.
8) But if the enterprise is held for any wrongdoing, the case will be filed against the enterprise and not the directors. However, the directors are responsible for the way the enterprise is run. If evidence of wrong- doings is found against the directors, cases can be field against them in the court of law.
9) The directors, in consultation with the shareholders, take the decisions pertaining to the company. Meetings such as Agms [Annual normal Meeting] are held to discuss about time to come strategies and growth plans.
10) The profits earned by the enterprise can be distributed among shareholders as dividend. Alternatively, it can be also used for the expansion plans of the company.
11) No single man owns the company. It has a perpetual existence, which is not affected by the death of any shareholder or director.
Though there are many distinguishing factors the main discrepancy between a sole trader and a dinky enterprise is that the law makes no discrepancy between a sole trader and his business, whereas a dinky enterprise is a cut off entity in itself which can function very much like humans i.e. It can hire people, sue and get sued etc.
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