The most asked question we receive with regards to registration decisions is :-
What is the differences between Limited Company, sole proprietorship and Partnership?
A Limited Company is legally a separate Business entity. Generally referred to as a legal being where the directors and the shareholders have limited liability in the business. When such a company is created, it has an Authorized share holding which defines the limit of the shareholder liability. This is the most viable options if the capital is being invested into the business by anyone who does not wish to be involved in running it.
SOLE PROPRIETORSHIP / BUSINESS NAME
A sole proprietorship is generally a Business Name (BN) Registered, owned and headed by one individual only. The person and his business are "one" legally. One has to maintain a careful record if he is self-employed. Such a person is legally liable for all the losses and profits in the business. If the business falters, is personally liable as he and the business are one and the same item.. On the bright side, he has complete control over his business and does not have to share his profits with any body.
PARTNERSHIP / BUSINESS NAME
A partnership is a Business Name Registered and run by two or more people together. A written agreement is at times necessary stating the terms and conditions of conducting the partnership business without harming the interest of either party. Profits are shared either equally or as per the terms given in the written agreement. The partners in a partnership just lime in a sole proprietorship are personally liable for acts of the partnership
Differance Between a Limited company and a Business name.
(For purposes of this explanation a Business Name refers to both a Sole proprietorship & Partnership)
Business Name Registration
- The Proprietor / s are personally responsible for all the affairs pertaining to the business.
- The law does not make any distinction between the owner and his business. In the eyes of the law, both the owner and his business are the same.
- Since the law does not distinguish between the owner and his business, his liability is unlimited. For e.g. If the business goes bankrupt, the owner will have to cough money from his own assets and financial reserves to pay to the creditors and lenders
- The sole trader is also liable to pay for any legal compensation that might arise in the course of running the business. He will not be able to defend himself by saying that the act was committed by his business and not by him.
- The sole trader has the final say as far as decision-making is concerned. He is not legally bound to listen to anyone. He may do whatever he deems to be fit.
- He keeps the entire profit earned by him. Similarly he also has to shoulder the entire burden of loss.
- A sole entity might come to an end if the owner becomes bankrupt or has an untimely demise, with no one to look after the business.
- A limited company is a separate entity and is a separate person in the eyes of the law. Since a limited company is a separate person, it can hire ‘employees’. These employees are responsible for running of the company. These employees can be the directors of the company, the secretary as well as the staff including the receptionist!
- A limited company can be set up with a minimum of two shares holders and the limit of their liability is as per the value of shares they own,
- The laws of almost all the countries specify the use of the word ‘limited ‘ or ‘Ltd’ after the name of the company.
- The finance for starting a limited company is raised by issuing shares. The people to whom the shares are issued are termed as shareholders. The shares cannot be issued to the general public unless it is a public limited company.
- The liability of the shareholders is limited to the amount paid by them during the purchase of the shares. For e.g. If the company goes into debts, they are not liable to pay to the lenders and creditors from their own personal finance.
- The company is generally is held separately for any wrongdoing, the case will be filed against the company and not the directors. However, the directors are responsible for the way the company is run. If evidence of wrong- doings is found against the directors, cases can be field against them in the court of law.
- Decisions on the way the company is run is done in meeting by the board and bound by resolutions.
- The profits earned by the company can be distributed among shareholders as dividend. Alternatively, it can be also used for the expansion plans of the company.
- A company has a perpetual existence, which is not affected by the death of any shareholder or director.
So the Question begs:
ADVANTAGES OR DISADVANTAGES OF LIMITED OVER A BUSINESS NAME.
- Organization. A Business name is a registration of a trade name for purposes of business whereas a Company of the incorporation of a separate legal entity to conduct business.
- Registration A BN is generally simpler to register and costs less and can have one person as a proprietor or two or more as partners, whereas a Limited company has a minimum of two shareholders, but can appoint directors and managers to operate the company.
- Liability. In BN's the proprietor is personally liable for act and omission of the registration. Companies are generally separate entities from the shareholders and hence separately liable. For the acts and omissions unless where the court goes behind the company shawl.
- Control. In a partnership, the proprietor /s have full control of the affairs of the BN, in a Company control is via board decisions or as per share holdings held by the shareholders.
- Continuity. Theoretically at leas, a partnership is less stable than a private company. Upon death or exit of a proprietor the BN ceases to exist, whereas a company can live forever in perpetuity outliving the directors
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