Comparing Sole Trader and Proprietary Company Business Structures

This assignment analyzes three business structures: sole trader, proprietary company, and partnership, addressing their legal and operational differences. It advises on choosing between a sole trader and a proprietary company for a new business, highlighting the simplicity and personal liability of a s...Read More

Question 1
Any person can form a sole trader type of business. A sole proprietorship form of
business does not exist on its own, and thus, the owner is responsible for the debts of the
business. That is, there is no legal separation of the business from its owner. A sole
proprietorship is most popular because it is simple to set up and simple to operate. A sole
proprietor, in many cases, will only need to register themselves to acquire a local license and
then start a business. However, this form of business is dangerous because if the business runs
into financial problems, debts, or even bankruptcy, the owner is held personally responsible, and
their assets such as cars, houses, and land can be used as collateral to settle business debts
(Debaise, 2010).
On the other hand, a proprietary company is a form of a private company that is either
limited or unlimited. However, because this is not a public company, it has limitations depending
on its locations and how it is set up. A company allows the existence of both the owner and the
company as two legal and separate entities. This means that if the company is not able to pay
their debts or they are declared bankrupt, the owners cannot be held liable for these debts.
However, this form of business requires a lot of legal processes in its formation. For instance, it
requires there to exist a board of directors that will be responsible for the decision-making of the
company. Due to the lengthy process and the legal requirements of opening a proprietary
company, I would advise Ted to open a sole trader form of business as this would see him kick-
start his bear selling activities on the go (Plumley, 2017).
Question 2
A partnership form of business allows both partners to share their contributions as well as
the profits. However, in this case, Sef has gone beyond the agreed amount of money that one can

sign off without the consent of the other partner. This means that Phi can be able to either accept
to pay the money or not as the contract does not legally bind him to pay the loan. If Sef does not
convince Phi that he requires to settle the debt, then it means that Sef will pay all the money on
his own (Silva et al., 2016).
Question 3
Secret commissions are the act of agents to either solicit or receive bribes or rewards and
inducements in a corrupt manner for either doing or not doing something on behalf of the person
they are representing. If the person being represented like Sebastian finds out that their agent is
receiving secret commissions, they can approach them and ask for more information or take up
the matter with the court. However, Sebastian should be careful so that the agent cannot
incriminate them in any way, and thus there is an absolute need first to find why the agent is
taking secret commissions (Millett, 2012).

References
Debaise, C. (2010, March 1). Forming a Sole Proprietorship. Wall Street Journal. Retrieved from
https://www.wsj.com/articles/SB10001424052748704625004575089691123329772
Millett, L. P. (2012). Bribes and secret commissions again. The Cambridge Law Journal, 71(3),
583–614. Retrieved from JSTOR.
Plumley, T. (2017, November 30). Sole Proprietorship or Corporation? – Water Well Journal.
Retrieved April 21, 2020, from https://waterwelljournal.com/sole-proprietorship-
corporation/
Silva, G., Dacorso, A. L. R., Costa, V. B., Serio, L. C. D., Silva, G., Dacorso, A. L. R., … Serio,
L. C. D. (2016). Relationships and Partnerships in Small Companies: Strengthening the
Business through External Agents. BAR - Brazilian Administration Review, 13(1), 1–18.
https://doi.org/10.1590/1807-7692barnaahead0116