Law of Business Organisation - Preparatory Activity 1 and 2

LAW OF BUSINESS ORGANISATION
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LAW OF BUSINESS ORGANISATION
PREPARATORY ACTIVITY 1
Legal
basis
Risk Sharing of
profits
Decision-
making
Administrativ
e burden
Flexibility
of structure
Secrecy
Sole trader
with
employees
Yes High as
unlimited
liability
No, 100%
with the
sole trader
Done by sole
trader with
assistance
from
employees
All burden to
on the sole
trader and
the
employees
hired
Not flexible
since does
not allow
for sharing
of
ownership
High since
no reporting
requirement
s
Partnership Partn
ership
Act
1890
High as
partners
have
unlimited
liability
sharing
amongst
them
In
accordance
with
partnership
agreement
Exhibited by
the partners
collectively
or as per the
partnership
agreement
This is
shared
between the
partners
based on
their
respective
skills.
Employees
can also be
hired for the
same.
The
structure is
not very
flexible as
to provide
entry/exit
to a
partner,
the firm
would be
dissolved
High since
practically no
reporting is
required
from such a
legal
structure
Limited
Liability
Partnership
(LLP)
LLP
Act of
2000
Medium
to high as
there is
an upper
cap to the
liabilities
on the
partners
Between
partners In
accordance
with
partnership
agreement
Exhibited by
the partners
collectively
or as per the
partnership
agreement
This is
shared
between the
partners
based on
their
respective
skills.
Employees
can also be
hired.
The
structure is
not very
flexible as
to provide
entry/exit
to a
partner,
the firm
would be
dissolved
Medium to
high as there
are some
reporting
and
regulatory
aspects
which need
to be
fulfilled.
Also, this
structure is
preferred
only for a
limited
professions
Company Comp
anies
Act
2006
Low since
company
is a
separate
legal
entity and
hence
separate
from
owners .
Also, it
can enter
The
company
pays
dividends
to
shareholde
rs and the
total
dividend
income
depends on
the shares
Usually a
professional
management
takes the
decision
which
reports to
the board.
The board is
elected by
the approval
of
A host of
employees
are
appointed by
the company
who act as
agent and
hence are
liable for the
duties which
are allocated
to them
Highly
flexible
since
shares can
be sold or
bought
without
dissolving
the
company.
May be
publicly
Low since
there are a
lot of
reporting
requirement
and
regulations
owing to
which the
financial
performance
and other