In bookkeeping, a bookkeeper needs to at least understand the type of organization structure that one is going to help to prepare the books of accounts.
Below, we describe the three types of organization structure listed with characteristics/key features, advantages and disadvantages of having such structure:
(a) Sole Trade or Sole Proprietor ( Part 1 of 3)
(b) Partnership ( Part 2 of 3)
(c) Limited Company ( Part 3 of 3)
SOLE TRADER OR SOLE PROPRIETOR
CHARACTERISTICS OR KEY FEATURES:
• A one man shop completely responsible for running all aspect of the business
ADVANTAGES:
• A one man shop so able to move quickly to seize opportunity without consulting any other partners, etc,
• Able to have complete freedom to make decisions on the way the business is conducted without reference to anyone else,
• Any assets built up in the business belong 100% to the individual owner and
• The least formal in respect of compliance with government requirements as paperwork is lesser hence might suit the lifestyle and character of the individual
DISADVANTAGESs:
• Assume 100% responsibility for all the debts and liabilities of the business
• As the owner’s personal debt and its business debt is intermingle, hence potential liabilities may increase the debts of the business
• Lack of transparency as the accounts are not publicly inspected or audited. This makes it difficult to contract with public sector organizations who demand a degree of transparency in their business contracts with the private sector.
• Lack of funds to expand further.
• Might incur higher or maximum tax band/liabilities as tax is charged on the amount of net profit left after deducting allowable expenses
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