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Sole Proprietorships

A sole proprietorship is a business owned and run by a single individual. The sole proprietor is entitled to all profits but responsible for any debts. It has advantages like flexibility and lower taxes but risks like personal bankruptcy. A partnership is a business with two or more owners who share profits and responsibility for debts. It has advantages like easier financing but disadvantages like unlimited liability and potential disputes between partners. The partnership dissolves if a partner dies unless the agreement states otherwise.

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356 views2 pages

Sole Proprietorships

A sole proprietorship is a business owned and run by a single individual. The sole proprietor is entitled to all profits but responsible for any debts. It has advantages like flexibility and lower taxes but risks like personal bankruptcy. A partnership is a business with two or more owners who share profits and responsibility for debts. It has advantages like easier financing but disadvantages like unlimited liability and potential disputes between partners. The partnership dissolves if a partner dies unless the agreement states otherwise.

Uploaded by

Lilkee John
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Sole proprietorships A sole proprietorship is a business that is run by a single individual who makes all the decisions, although

the proprietor may engage employees. The sole proprietor is personally entitled to all of the profits and is responsible for any debts that the company incurs. Advantages of forming a sole proprietorship

Sole proprietorship is the simplest and most flexible business structure. The sole proprietor has total control and full decision-making power over policies, profits and capital investment. It is easy to close down the business. Profits from the business will be taxed at the sole proprietor's marginal tax rate, which may be lower than the corporate (limited company) tax rate. Also, business losses can be offset against the other income of the proprietor (for more details on profits tax please go to another topic Taxation ).

Disadvantages of forming a sole proprietorship


Risks that are taken by the sole proprietor may result in personal bankruptcy. The death or prolonged illness of the sole proprietor will lead to the end of the business. Due to the limitations of a one-person business, the sole proprietor may not be able to raise additional capital from outside sources to expand the business.

Partnerships A partnership is the relation which subsists between persons carrying on a business in common with a view of profit. The law relating to partnership is codified under the Partnership Ordinance, Cap. 38. However the relation between members of any company or association which is (a) registered as a company under any Ordinance relating to the registration of joint-stock companies; or (b) formed or incorporated by or in pursuance of any other Ordinance, or any enactment or instrument is not a partnership within the meaning of the Partnership Ordinance. Unlike a limited company, each partner in a partnership is personally liable for the acts of the other partners and for all of the debts of the company. On the other hand, all partners are entitled to share in the profits of the company equally unless they agree otherwise. The transfer of interests in the company to existing or new partners may be carried out in accordance with the Partnership Agreement or other agreement that is entered into by all of the partners. In practice, there is little market for the transfer of the interests of a partnership to public investors. The name of a partnership can be formed by combining the names (usually the surnames) of the partners. If there are many partners, then they may name the company "XX Company" or "XX &

Co". However, they must not include the words "limited" or "company limited",as this is an offence that carries a fine. Note that a partnership can also use a business name or trade name (for example, XX Caf) in addition to the partnership name. It is important for the partners to prepare a Partnership Agreement that contains provisions for profit sharing, control and the settling of managerial and policy disputes. You are strongly recommended to appoint a lawyer to prepare the Partnership Agreement. Advantages of forming a partnership

It is easier to raise finance as a partnership than as a sole proprietor. Partners pay tax on their share of the partnership profits at their respective marginal tax rates, and their share in the partnership losses can be offset against their other income (for more details on profits tax, please go to another topic Taxation ).

Disadvantages of forming a partnership


Partners do not have the benefit of limited liability. The participation of all the partners is needed for most legal transactions, which can result in disputes among the partners. The partnership will be dissolved when a partner dies or becomes bankrupt, unless the Partnership Agreement states otherwise ( section 35 of the Partnership Ordinance ).

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