Understanding Business Entities: Sole Trader, Company & Partnership

This report provides a comparative analysis of three business structures: sole proprietorships, partnerships, and companies. It explores the reasons for the existence of each type, highlighting factors such as control, capital requirements, and legal considerations. The report also differentiates between authorized and issued share capital, as well as credit lines and bank loans as forms of long-term debt, outlining the characteristics, usage, interest charges, and repayment terms for each. The study concludes by summarizing the key differences and purposes of these business organizations, emphasizing their roles in fulfilling diverse economic needs and offering varied opportunities for individuals and groups.

SOLE TRADER, PARTNERSHIP AND
COMPANY

TABLE OF CONTENTS
INTRODUCTION.......................................................................................................................................4
MAIN BODY..............................................................................................................................................4
Why do sole traders, partnership and company exist.............................................................................4
Difference between two forms of share capital and two forms of long-term debt....................................6
CONCLUSION...........................................................................................................................................7
REFRENCES..................................................................................................................................................8

INTRODUCTION
Sole trader is a type of business organization which is owned and controlled by one
and single person and the person who is carrying all the liability of his
organization on his head. Partnership is the type of business firm which is owned
and controlled by two or more than two persons having oral or written agreement
between them about the sharing of business. Company is a type of organization
which is legally formed by group of many individuals who engage and control the
business firm in the way of industrial capacity. This report will be going to discuss
why these firms exist in the market and this report will show the difference
between two forms of share capital and two forms of long-term debt( King, 2020 ).
MAIN BODY
Why do sole traders, partnership and company exist.
Sole trader
This is the type of business which is completely controlled by only one person and
the business is known by the name of only that person as the business has no
different identity there are many reasons that tells that why do sole proprietors
exist some these reasons are as follow: -
 Many people want to have a business that succeed in the cut throat market
and they want to get the total credit and total profit
 There are many types of small business that can’t be opened in the big
market like – tailor, barbor, beauty salon, general store, mobile shop,
provisional store(Morgan, 2021).
 Lack of funds can also be the main reason as some people wants to open
their own business but they have less funds to co-op with someone hence

they open their own store like provisional store to earn lifestyle( Randall,
2020 ).
 This type of business organization exist as they give high profits which is
earned by only one person who is proprietor also as it has the less legal
activity that has to undertaken these type of business organisation. Mainly
times the ego say’s to open this type of firm.( Medina, 2020 )
Partnership
This is the type of business firm in which there are two or more than two people or
partners operate the business, they have the personal agreement between them
which is known as partnership deed, some of the reason why this kind of
organization exists are as follows: -
 Mostly peoples get in partnership business as they want to have long term
stability in their business having one or more partners resolve the risk of
liability or loss which increases the firm’s stability( Zhu, 2018 ).
 Partnership business exist because it gives high capital for business when
there is single person involved in the organization it has low capital as
compared to capital of two or more than two people, which also reduces the
risk of exiting of business due to occurring of debt or loss(Bruwer, 2019).
Company
This is the type of business firm in which the company is owned by its
shareholders who have purchased the company shares on the market value. There
are some reasons that show that why do company exist these reasons are as
follows:-
 Companies does exist to fulfill the living of people of the country.
 Companies exist because of high profit ratio and big market goodwill; every
company has some sort of earnings which increases it goodwill and
customer base these increases are the reason because of which a company
exist.
 Existence of company is the matter off success an organization exist only
when they are getting high success in market which will giving return to its
customers and owners too(Banks, 2019).
 Because of legal existence of organization.
Difference between two forms of share capital and two forms of long-term debt
Difference between two forms of share capital

There are two main forms of share capital these are authorized and issued share
capital. Differentiate between them is shown below in the table
Authorized share capital Issued share capital
It refers to the highest stop of share
capital which is raised by an
organisation from the persons by
issuance of shares
This is said as the part of authorized
capital, which is offered to normal
public for subscription
This is based on future and present
needs
This one is based on present needs
The declaration is prior to the
incorporation of company
This is declared when a company
brings it’s own IPO
It is being paid on authorized capital
stamp duty.( SAHIQ , 2021 )
Stamp duty is not paid on issued share
capital
The registration fee of the organisation
is based on authorized capital
Capital issued is not the basis for the
payment of registeration fees
To have any of the changes in the price
of the authorized capital firstly the
MOA have to be altered
It doesn’t need to make changes in the
MOA to alter the issued capital
Difference between the two forms of long-term debt
Credit line and bank loan are the two main types of long term debt, differentiation
between them is shown in the below table :-
BASIS CREDIT LINE BANK LOAN
DISBURSEMENT This is an ended open
arrangement( Passon, T.,
2020.)
This is one time use
arrangement
USAGE Person can use the
amount when it is
required
Person receive the
amount for the
consumption in one go
INTEREST CHARGES Interest is charged on the
money used by person
Interest is charged after
the disbursement of
amount
REPAYMENT There is no fixed
installement
Have common repayment
schedule

CONCLUSION
This study has taught that why sole traders, partnership and company type of
business organization exist what are the main purpose that the peoples are using
these types of firms also it has taught the difference between two types of share
capital and the difference between the two types of long term debt.

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