Activity 5 – Determine appropriate business structure

Please provide answers to the following questions:

1. Explain each business structure listed above and the types of business activities
most suited to each.
A sole trader is a business owned by one person. They are usually small in size. Hairdressers, butchers, and
electricians often operate as sole traders. Sole traders rely on their own savings, bank loans or loans from friends
and family to finance their business. A partnership is an arrangement where parties, known as business partners,
agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses,
interest-based organizations, schools, governments or combinations. A proprietary limited company is a
private (not public) company that does not sell its shares to the general public and can have a maximum of 50
shareholders. There is a limit to shareholders' legal responsibility for company debts. A trust company is a legal
entity that acts as a fiduciary, agent, or trustee on behalf of a person or business for a trust. A trust company is
typically tasked with the administration, management, and the eventual transfer of assets to beneficiaries. A
public company, publicly traded company, publicly held company, publicly listed company, or public limited
company is a company whose ownership is organized via shares of stock which are intended to be freely traded
on a stock exchange or in over-the-counter markets. An incorporated association is a registered legal entity
that's usually established for recreational, cultural or charitable purposes. It must have at least 5 members and put
all profits back into the association's activities.

2. What are the advantages and disadvantages of each form of business structure?

Business Structures Advantage Disadvantage

Sole Trader Easier processes and fewer
requirements for business taxes.
Partnership Sharing the labor. Having a partner
may not only make you more
productive, but it may afford you the
ease and flexibility to pursue more
business opportunities.
Proprietary Limited Company No Minimum Capital
Have unlimited liability for debts as
there's no legal distinction between
private and business assets.
The liability of the partners for the
debts of the business is unlimited
It restricts the transfer ability of
shares by its articles.

Trust The structure provides more privacy Problems can be encountered when
than a company borrowing due to additional
complexities of loan structures
Public Company Raising capital through public issue More regulatory requirements
of shares

Incorporated Association Business security and continuity Time-consuming and subject to

double taxation
3. What factors will determine the type of business structure you should use?

 Cost of Start-up
 Control vs. Responsibility
 Profits—to Share or Not to Share
 Taxation
 Entrepreneurial Ability
 Risk Tolerance
 Financing
 Continuity and Transferability