Distinct Entity

A limited company is a completely separate entity from its owners. Everything from the company bank account, to ownership of assets and involvement in tenders and contracts is purely company business and separate from the interests of the company’s shareholders.

A sole trader and his/her business is treated as a single entity for tax and administrative purposes.

Limited Liability

Running your business as a limited company means you have the reassurance of ‘limited liability’. Assuming no fraud has taken place, your ‘limited liability’ means you will not be personally liable for any financial losses made by your business. A limited company can therefore give you added protection should things go wrong.

Those running a business as self-employed do not enjoy such protection from financial claims if things go wrong with their business.

Funding

Finding funding can be difficult for all types of businesses in the current climate. But because a limited company is a distinct entity from its owners it may be a little easier for a company to secure business finance than it is for their sole trader counterparts.

Naming

Once you register your company with the registrar generals department your company name is protected by law. No-one else can use the same name as you, or anything deemed to be too similar.

As a sole trader, it’s possible someone else could trade under the same name as you, and you couldn’t do anything about it. This could damage your business, and in some cases, result in you having to go through the costly and time-consuming effort of changing the name of your business.

Shareholders

A limited company can issue various classes of shares. This means you can easily sell stakes in the company, or transfer ownership of shares.

Pensions

A limited company can fund its employees’ executive pensions as a legitimate business expense. This can offer a tax advantage over those who are running their business as self-employed.

Succession

If a shareholder wishes to retire, sell his shareholding, or dies, it is far easier to transfer ownership of a limited company than a non-registered business structure.                                                                                                                                          (Any 4)

• Name – A partnership cannot use the word “limited” in its name.
• No separate legal personality – a partnership has no separate legal personality, separate from its partners/members of the partnership. However, a company does have a separate personality from its shareholders. A company owns its property, not the shareholders. Partners own the partnership property.
• Unlimited Personal Liability– a partnership has unlimited liability for all the debts of the firm whereas shareholders in a company have liability limited.
• Succession – when one partner dies, the partnership is dissolved unless the partnership agreement provides otherwise. However, a company has “perpetual succession”. Shareholders may die but the company continues until it is wound up.
• Management – a partnership is managed by the partners together – they are the shareholders, managers and workers. A company is managed by the directors not the shareholders.
• Shares – partners have a share in a partnership as agreed between them. A partner’s share cannot be transferred without the consent of the other partners. In reality there is not a substantial difference in the definition of a share between a company and a partnership. Size – a partnership can have between 2 and 20 partners, except solicitors and accountants. A private company can have more and a public company can have 7 or more shareholders.
• Regulation – a company has memorandum & Articles of Association and a partnership usually has a Partnership Agreement to regulate its affairs.
• Legislation – the Incorporated Partnership Act of 1952 Act 152 is the primary piece of law (legislation) which governs partnerships .Companies are governed by the Companies Acts 1963, Act 179 – to date.
• Taxation – it is often said that partnerships are tax-transparent. Tax is paid by the partners on the profits each partner makes at the usual income tax levels for an individual. A company, being a separate legal personality, pays corporation tax (currently at 25%) but in addition to this, the shareholders will pay tax on any dividends received from the company.
• Accounts – Partnerships are not required to file accounts in the Company records office. Companies must file accounts at the Company records office. Therefore while a lot of a company’s financial details are a matter of public record, Partnerships financial details are kept private.                                                                                                                                (Any 3)

• Liability: The business owner will be held directly responsible for any losses, debts, or violations coming from the business. For example if the business must pay any debts, these will be satisfied from the owner’s own personal funds. The owner could be sued for any unlawful acts committed by the employees. This is drastically different from corporations, wherein the members enjoy limited liability (i.e., they cannot be held liable for losses or violations)
• Taxes: While there are many tax benefits to sole proprietorships, a main drawback is that the owner must pay self-employment taxes. Also, some tax benefits may not be deductible, such as health insurance premiums for employees.
• Lack of “continuity”: The business does not continue if the owner becomes deceased or incapacitated, since they are treated as one and the same. Upon the owner’s death, the business is liquidated and becomes part of the owner’s personal estate, to be distributed to beneficiaries. This can result in heavy tax consequences on beneficiaries due to inheritance taxes and estate taxes.
• Difficulty in raising capital: Since the initial funds are usually provided by the owner, it can be difficult to generate capital. Sole proprietorships do not issue stocks or other money-generating investments like corporations do.