8/3/2019 The Ideal Essay St vs Plt

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PRIVATE LIMITED COMPANY VS SOLE TRADER.

QUESTION: Kevin James a tailor is contemplating on whether to remain a sole trader or to form a

private limited company. Explain to Kevin three advantages and three disadvantages that a privatelimited company has over a sole trader.

Firstly, one of the main advantages of a Private Limited Company over a sole trader is that,

members may enjoy the availability of Limited Liability, hence the business is incorporated (i.e. the

business has a separate identity from the owner).Therefore, liability for payment of debts stops at

the Company, and owners and shareholders are not personally liable for any other debts than that

of which they have purchased. On the other hand, a sole traders liability status is unlimited and

there is no distinction between personal and business money. Hence if the business incurs debts,

the sole trader will stand to lose personal assets.

Another advantage that a Private Limited Company has over a sole trader is that the company hasan unlimited life, while a sole trader lacks continuity. This means that in a company, years after

some founding members have died or moved on, the company can still be operational while since

the sole trader business is a personal one, if the owner dies, the business also dies.

Thirdly, more capital can be raised as there are many owners or shareholders in the private limited

company. Being sole trader, however it is difficult to raise capital since only one person contributes

money.

Although, a Private Limited Company has many advantages over a sole trader, there are also a few

disadvantages. One of this is that profits can be diluted because they must be evenly distributed

among all shareholders. However, in a sole proprietorship all profits would go to the sole trader.

Also a disadvantage with a Private Limited Company is it isnt very easy to sell shares if a person

wishes to do so. Not only will it take time but it will be necessary for a buyer to purchase the

share(s) form the previous owner. Shares tend notto be very transferrable, and the directors

consent must be given before any actions can commence. Where as, in a sole proprietor, there is no

need for consent, no waiting as there are no shares to be purchased from a business.

Lastly, there is a legal procedure to follow when establishing a Private Limited Company. This

procedure is very time consuming and can also be very expensive. However, with a sole trader, no

major legal formation is required.

DONE BY: ALISHA HOSEIN, KEZIA FELIX, BALINDA RAMLOCHAN, MELISSA FIGARO,

KASHMEERA MAYRHOO , SANGITA GANGA-PERSAD

CLASS: LOWER SIX (61)

SUBJECT: MANAGEMENT OF BUSINESS.