Prykhodko Daria and Rumiantseva Amina

LEGAL

SOLE PROPRIETORSHIP

The Advantages

 Quicker Tax Preparation: filing your taxes is generally easier than a corporation. Simply file
an individual income tax return including your business losses and profits.
 Lower Start-up Costs: Limited capital is a reality for many startups and small businesses.
The costs of setting up and operating a corporation involve higher set-up fees and special
forms. It's also not uncommon for a lawyer to be involved in forming a corporation.
 Ease of Money Handling: Handling money for the business is easier than other legal
business structures. No payroll set-up is required to pay yourself.

The Disadvantages

 Personally Liable: Your small business in the form of a sole proprietorship is personally
liable for all debts and actions of the company. Unlike a corporation or LLC, your business
doesn't exist as a separate legal entity. All your personal wealth and assets are linked to the
business.
 Lack of Financial Controls: The looser structure of a proprietorship won't require financial
statements and maintaining company minutes as a corporation.
 Lonely at The Top: Being a business of one can be lonely. All the decisions, actions, and
results rest on you.
 Difficult to Raise Capital: Outside investors will take your company more serious if you are
a corporation.

SOLE TRADER

The Advantages

 Control: Sole traders maintain full control of their business. Running it how they please
without the interference of others.
 Profit retention: Sole traders retain all the profits of their business.
 Private data: Information about sole traders is kept private, unlike that of limited
companies which is necessarily made public after registration with Companies House.
 Specialist: Often a small business, sole traders can offer a more personal service with local
roots and ties. This can be more appealing to potential customers in the local community.
 Personal: Because there is no need to confer with other decision makers, sole traders can
make decisions quickly and act on them swiftly, providing for the needs of their customers.

The Disadvantages

 Liability: sole traders are not seen as a separate entity by the law. Therefore, they are
subject to unlimited liability. This means if the business gets into debt, the business owner
is liable.
 Finance: sole traders often find it difficult to raise finance to fund their business.
 Reverse economies of scale: sole traders will be unable to take advantage of economies of
scale in the same way as limited companies and larger corporations, who can afford to buy
in bulk. This might mean that they have to charge higher prices for their products or
services in order to cover the costs.
 Decision making: all decisions must be made by the sole trader. There is no room for help
by others. So, the success or failure of the business rests on one person.

PARTNERSHIP

The Advantages

 two heads (or more) are better than one

 your business is easy to establish and start-up costs are low
 more capital is available for the business
 you’ll have greater borrowing capacity
 high-caliber employees can be made partners
 there is opportunity for income splitting, an advantage of particular importance due to
resultant tax savings
 partners’ business affairs are private
 there is limited external regulation
 it’s easy to change your legal structure later if circumstances change.

The Disadvantages

 the liability of the partners for the debts of the business is unlimited
 each partner is ‘jointly and severally’ liable for the partnership’s debts; that is, each partner
is liable for their share of the partnership debts as well as being liable for all the debts
 there is a risk of disagreements and friction among partners and management
 each partner is an agent of the partnership and is liable for actions by other partners
 if partners join or leave, you will probably have to value all the partnership assets and this
can be costly.

PRIVATE COMPANY

The Advantages

 Limited Liability: In case the private limited company has debt and losses, the only liability
by the shareholders is only up to the amount they individually invested.
 Tax Benefits: Private limited companies are tax efficient because there are many benefits to
enjoy. Companies can take advantage of schemes, rebates and policies.
 Ease in Ownership and Share Transfer: You can also easily transfer in part or wholly your
company to another owner.
 Attracts Investors: Selling shares, running a crowdfunding campaign, getting angel
investors and venture capital are some of the ways to obtain funds.

The Disadvantages

 Strict Regulations: Private limited companies usually have to conform to stricter

government laws and regulations than other types of companies.
 Difficult to Liquidate: If ever you feel you need to liquidate your company; you might find it
difficult to find buyers due to the high legal compliance procedures.
 Complex Accounting and Auditing Requirements: You need to keep meticulous records of
all your financial transactions.
 Necessary Employees: Most requires private limited companies to have at least one
director and one company secretary.

PUBLIC LIMITED COMPANY

The Advantages

 Raising capital through public issue of shares: The most obvious advantage of being a
public limited company is the ability to raise share capital, particularly where the company
is listed on a recognized exchange.
 Other finance opportunities: The demands of being a public limited company and
maintaining a stock exchange listing, for example, can help to improve a company’s
creditworthiness when issuing corporate debt (and therefore reduces the return the
company needs to offer investors).
 Growth and expansion opportunities
 Pursue new projects, new products or new markets
 Make capital expenditure to support and enhance the business
 Fund research and development
 Prestigious profile and confidence
 Transferability of shares: The shares of a public limited company are more easily
transferable than those in the private equivalent, meaning shareholders benefit from
liquidity.

The Disadvantages

 Higher levels of transparency required: Limited companies, whether public or private, have
more of their details in the public domain, available via Companies House, than other
business types. But the required level of transparency is much higher for public companies.
 Ownership and control issues: With a private limited company, the shareholders will
typically be people known to the directors or founders. A private company will often be
selective over who to admit as a shareholder, ensuring they support the vision and plans
for the business.
 More vulnerable to takeovers: A company can become vulnerable to a hostile takeover if a
majority of shareholders agree to a bid. With shares being freely transferable, a potential
bidder can build up a shareholding in advance of launching a bid attempt.

MANAGEMENT

FUNCTIONAL STRUCTURE

The Advantages

Functional departments arguably permit greater operational efficiency because employees

with shared skills and knowledge are grouped together by functions performed. Each
group of specialists can therefore operate independently with management acting as the
point of cross-communication between functional areas. This arrangement allows for
increased specialization.

The Disadvantages

A disadvantage of this structure is that the different functional groups may not
communicate with one another, potentially decreasing flexibility and innovation. Functional
structures may also be susceptible to tunnel vision, with each function perceiving the
organization only from within the frame of its own operation. Recent trends that aim to
combat these disadvantages include the use of teams that cross traditional departmental
lines and the promotion of cross-functional communication.

DIVISIONAL STRUCTURE

The Advantages

As with all organizational structure types, the divisional structure offers distinct advantages
and disadvantages. Generally speaking, divisions work best for companies with wide
variance in product offerings or regions of geographic operation. The divisional structure
can be useful because it affords the company greater operational flexibility.

The Disadvantages

Some disadvantages of this structure include operational inefficiencies from separating

specialized functions—for example, finance personnel in one division do not communicate
with those in another division. Disadvantages of the multidivisional structure can include
increased accounting and tax implications.

MATRIX STRUCTURE

The Advantages

Proponents of matrix management suggest that this structure allows team members to
share information more readily across task boundaries, countering the “silo” critique of
functional management.

The Disadvantages

A disadvantage of the matrix structure is the increased complexity in the chain of

command when employees are assigned to both functional and project managers. This
increase in complexity can result in a higher manager-to-worker ratio, which can in turn
increase costs or lead to conflicting employee loyalties. It can also create a gridlock in
decision making if a manager on one end of the matrix disagrees with another manager.
Blurred authority in a matrix structure can result in reduced agility in decision making and
conflict resolution.