Business Organizations and Their Legal Responsibility to Stakeholders

Aim

This paper aims to report some of the business organizations as well as their legal responsibility to stakeholders. In particular, some of the business organizations discussed in this report may include sole trader, private limited company, the partnership, and the public limited company. This paper touches on their structure and the financial responsibility of the owner as well as the impact they have on their stakeholders. Any person who considers starting a business has to look at both the disadvantages and the advantages of each of the different business structure.

Sole Trader

By definition, a sole trader structure of a business refers to a person who trades as the individual legally responsible for all the business aspects (Baran 110). Some of these factors include the losses and debts which cannot be shared by other members. Sole trader type of business structure is relatively less expensive as compared to other forms of businesses due to its simplicity. As a sole trader, a person is generally required to make all the decisions regarding the business. Here, some of the vital decisions include how to start and run the business efficiently. However, a sole trader can as well employ others to help in the smooth running of the business (Haretsebe and Manwa 31).

In general, the sole trader is simple for setting up and operating. In terms of the legal responsibility to stakeholders, the type of business structure also gives full control of the decisions and assets. Not many of the reporting requirements are required, hence making it a low-cost structure. Moreover, a sole trader provides the possibility of using an individual TFN (tax file number) for lodging the tax returns (Wright 43). Also, it has unlimited liability. In a scenario where things go wrong, all the personal belongings are exposed to risk. In most cases, the assets of the owner are seized with the aim of recovering the debt.
Any losses that the business activities incur may be offset by the use of other income that is earned subject to certain conditions. In this type of business structure, there is no need for a separate bank account. A personal bank account can be used, provided financial records are kept for at least five years (Baran 113). The owner of the business is not considered one of the employees. There is no need for making payment for the payroll tax, if the owner of the business has no employees. However, one can choose to superannuate contributions to him/herself for various reasons voluntarily. A business structure can be changed with time depending on its size.

Partnership

A partnership refers to a structure of a business involving several people. These individuals work towards carrying on a business together (Wright 44). In a scenario where the business will be run jointly with another person or several persons, a partnership is chosen over a sole trader. Markedly, a partnership type of business involves a number of individuals that do not exceed 20. Typically, there are two types of business partnerships. In particular, the two kinds of partnerships include the limited and the general. There are relevant laws that are used for governing the partnerships. Different territories or countries have various laws (Baran 115).
Partnership structure has different key aspects. For example, it is inexpensive and easy to set up compared to companies. Also, partnerships require a separate TFN (Tax File Number). Just like in the case of a sole trader, a partnership is not a separate entity. In other words, the business as well as the owner may be referred to as personally liable for business’ debts. The income earned by the partnership is not subjected to tax. However, only the net partnerships income’s share of all the partners is subjected to taxation. The partners have management and the shared control of the business. They are also not considered employees of the business (Baran 116). For this reason, the partners are responsible for their arrangement of superannuation. This kind of business structure also requires a registration.

Public Limited Company

A public limited company was created under some commonwealth jurisdictions, United Kingdom company law, and the Ireland’s Republic. In a public limited company, shares may be freely traded and sold to the public. However, there is some minimum share capital. Also, there is a separate legal identity for the public limited company. This business structure can be either listed or unlisted company on the stock exchanges (Soroka 284). Usually, the structure requires an inclusion of the words “public limited company” in countries such as the United Kingdom.

Private Limited Company

A private limited company, by definition, refers to a separate legal entity. The owners of the company are not personally liable either legally or financially, when the business is hitting the bad times. Also, the procedure involved to set up the company makes it less personal. In addition, the responsibilities of running the company are also shared with other members. As a result, the workload is not left to an individual (Wright 54).

This business structure also creates room for sharing the work. Practically, bringing in more people into this mix makes the owners of the company benefit from skills and expertise of others. In effect, a clear head for business is achieved in the process. The private limited company also has income advantages. For instance, it limits the owners’ personal liability (Soroka 287). In the same way, there are other tax advantages involved to set up this kind of business structure.
Moreover, a person is likely to be protected from the higher rates of income tax, since the company pays corporation tax only on taxable profits. Unlike the sole trader type of business structure, the private limited company continues with its operation even in case the owners fall seek, retire, and other circumstances arise. In the process of setting up a private limited company, other people can be chosen to take control, when the owner is not around. Again, there are also the tax savings that are associated with the private limited company (Haretsebe and Manwa 34). Practically, there are more tax-deductible costs and allowances.

Conclusion

Overall, this paper achieves its objective of reporting some of the business organisations as well as their legal responsibility to stakeholders. As already noted, the paper touches on some of the business organisations that include sole trader, private limited company, the partnership, and the public limited company. Also, this report discusses effectively the various business structure and the financial responsibility of the owner as well as the impact their have on their stakeholders. Ordinarily, any person who thinks of starting a business has to look at both the disadvantages and the advantages of each of the different business structure. The nature of the intended business also dictates the type of business structure to go for.

Works Cited

Baran, Małgorzata. “Knowledge Management in Organizations. The Case of Business Clusters.” Management and Business Administration. Central Europe, vol. 21, no. 4, 2013, pp. 110-119.
Manwa, Haretsebe, and Farai Manwa. “Applicability of the Western Concept of Mentoring to African Organizations.” Journal of African Business, vol. 8, no. 1, 2007, pp. 31-43.
Penn, Chris. “The Evolution of the Data-Driven Company.” IBM, 2017. https://www.ibm.com/blogs/business-analytics/evolution-data-driven-company/. Accessed 01 Nov. 2017.
Soroka, Svetlana A. “Assessment of Business Activity of the Organizations Wholesale Trade.” The Economy of Region, no. 3, 2012, pp. 284-288.
Wright, William F. “Client Business Models, Process Business Risks and the Risk of Material Misstatement of Revenue.” Accounting, Organizations and Society, vol. 48, 2016, pp. 43-55.

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