Legal Structures Essay
For a person to conduct business in Australia one must be either a sole trader, in a partnership, in a private or public company. In all these entities the government has different legal and taxation structures that enhance the smooth running of business. There are several similarities and differences between the sole proprietor and a private company from how they are set up to how they are run. Sole traders have a simple structure while private companies have a complex structure that requires an expert to run the operation of the company. For this essay, I will discuss the similarities and differences of legal structures in sole proprietor business to that of a private company.
A sole proprietor is defined as an entity where operations are run by an individual. In legal explanation, the business entity is no difference from the individual. As a result of this, a sole trader is liable for all liabilities of the business and does not share profit, or losses with any other entity. The individual is liable for debt arising from the sale of goods and services. Moreover, in the sole trader engages in the supply of goods and a litigation arises pot of bad quality or failure to deliver on time a proprietor take full responsibility for such inconvenience to their other party they are in contract with. Therefore, a sole trader may offset his business loan with his personal assets such as land or a car. Thus, all assets under the proprietors name can be used to offset business debts.
On the other hand, a private company is a legal business that is separate from it proprietors. For a private company the liability of the company cannot be extended beyond the companies resources. However, director’s personal assets can be taken if the company cannot be able to meet it an obligation. This is however guided by the ASIC’s Guide for small Business Directors. This makes a difference between the sole proprietor and a private company. In addition, when a sole trader is run by one director or proprietor, the private companies have a minimum of two directors. Moreover, a company can have different people running the company on behalf of the directors. This is not actually the case with sole proprietor business. Thus, private companies shield its directors from liabilities of the company.
A sole trade can transact business with his or her name or any other business name registered with the registrar of companies. This is not the case with a private company. Private companies can only conduct business by their registered name only at any given time. The business cannot be referred to its director’s names. The government has different policies that guide sole proprietors and private companies. Sole traders are required to remit their income taxation while private companies are taxed as small or large companies. Thus, a small private company is required to publish annual reports of its operations. This is done to facilitate the appropriation of income tax laws. For large private companies, they must publish audited annual reports of it income and profit. In addition, large private companies must submit their financial reports to the ASIC.
Private company and sole trader business have different tax regulations. For a sole proprietor, the owner is taxed as a person and one is obligated to report his or her individual income return. On the other hand, a private company is taxed as an entity different from it owners. In addition, all the directors of the company are required to submit their income return for other capacities or in the position held by the company as employees.
Compared to sole proprietor business, a private company has a lot of activates that requires experts to run the business. Given that private companies are required by law to publish annual return make them employ the specialized individual in accounting. This is not the case with a sole trader. Though an individual business can maintain in book keeping this is not required by law. As a result, it is costly to run a private business compared to running a sole proprietor business.
Both sole proprietor and private companies can employ employee other than the owners and directors. For both entities, the employee can be hired to help in running the day to day activities, but they must remit their own individual returns apart from that of the business they work for. In addition, both sole proprietor and private company must provide their employees with worker’s compensation cover to cater for the incidence of sickness, accidents while working for the company.
All the money earned in a sole proprietor business belongs to the individual owner. It is a personal income that the owner can use for his own desires. On the other hand, all the income from a private company belongs to the company. To facilitate this government requires a private company to have a separate bank account for the purposes of banking the company’s deposits and payouts. Because of this, private companies are required to pay wages to it directors of directors’ fees. No director is allowed to draw income for his own personal use.
Sole proprietors have full control of their business. The business is run smoothly as only one person makes decisions that are executed by employees. This is not the case with private companies that have more than one director. The law required that decision making for private companies be made in writing after consultation with the stakeholders. All meeting of director requires preparation of minutes by the company’s secretary. This makes decision-making processes that take the time to execute.
There is a cutout difference between sole proprietor businesses to private companies. Sole traders are the directors of their business and responsible for all decisions. On the other hand, private companies are run by the director in case it is owned by a single individual or directors where they are more than one. Private companies are required to publish annual reports and in the case of large company audited financial reports. In addition, both sole proprietor and private company pay taxes to the government. Nonetheless, a sole trader pays individual income tax while private companies pay companies income tax. Both entities have a different tax rate that determines how much they submit to the government. In addition, sole proprietors have unlimited liabilities for all operations carried out by their businesses. On the other hand, private companies have limited liabilities to an extent where the business cannot pay out it debt. Moreover, all the directors of private companies are liable to tax debt owed by the company at the time they were running the company.