Business Studies

Business Structures: Sole Proprietorship, Advantages and Disadvantages

len Alfred Ajibola - Mon, 22nd April, 2019 @ 22:29: PM

Topics in Business Studies

Business Studies: What is Business Studies and Business? Management: Elements of Management What is Management? Importance of Management Advantages and Disadvantages of Air Transport Advantages and Disadvantages of Rail Transport Methods of Payment: Cheque - What is a Cheque? Cheque: Types of Cheque Cheque: Characteristics of Cheque Advantages and Disadvantages of Cheque Advertising and Types of Advertising Advantages and Disadvantages of Road Transport Advantages and Disadvantages of Water Transport Consumer Protection - Agencies of Consumer Protection Consumer Right and Protection Methods of Payment: Credit Cards and Debit Cards Methods of Payment: Bank Notes and Coins | Characteristics of Legal Tender Scope and Importance of Business Studies Business Structures: Sole Proprietorship, Advantages and Disadvantages Clerical Staff: Grades, Qualities and Functions of a Clerical Staff Principle of Double Entry: Characteristics, Advantages, Disadvantages

Academic Questions in Business Studies

Please check out our Test Your Knowledge page to see all Questions and Answers

Which of the following is not a Right of Consumer Protection?

  • A. Right to Education
  • B. Right to Choose
  • C. Right to Safety
  • D. Right to the Good things of Life
  • E. Right to be Assured
  • F. Right to Compel

Which of the following is NOT a government agency of consumer protection?

  • A. Ministry of Sports
  • B. Ministry of Commerce
  • C. Consumer Protection Council
  • D. Ministry of Health
  • E. Ministry of Environment
  •  F. National Drug Law Enforcement Agent

Define Consumer Protection.

In buying and selling, the retailer will usually operate from the stall while the wholesaler operates from the _____.

  1. chain store
  2. hyper market
  3. hypo market
  4. warehouse
  5. mobile shop
  6. supermarket

What is a Business Structure?

A business structure is a type of organization that is legally backed and recognized within a country or state.

Before starting a business, one will need to choose the best possible structure for his or her intended business. The larger the business structure, the larger the sum of money required to start and run such business. The type of business structure will also reflect the amount of tax to be paid on the business.

Note: One of the characteristics of a Government is the generation of income through taxation from various business structures.

Please read on the Characteristics, Functions and Importance of Government here.

Oftentimes people start (a business) with a small business structure; let’s say sole proprietorship for instance because it requires a small capital. As the business grows, one may wish to change the structure of the business in order to accommodate its growth. This change as a result of business growth will also result in an increased tax liability.

Please read on Meaning, Scope and Importance of Business Studies here.

Types of Business Structure

Below are the various types of business structure:

1. Sole Proprietorship

This is a one man or one woman business. If the man or woman is married, both parties (husband and wife) can still be considered as a sole proprietorship.

Sole Proprietorship happens to be the easiest business structure to start because the business capital is not necessarily huge.

The taxation of a sole proprietor is significantly lower when compared to other forms of business structure.

The sole traders have got total control over their business because all decisions concerning the business is made by them. On the other hand, they are liable for all the loss and debt incurred in the business.

Nowadays, obtaining loans to begin a sole proprietorship business structure is easier compared to the past where one will need to depend on their personal income or the use of collaterals.

Please read on How to start a Home Based Fish Farming here.

Advantages of Sole Proprietorship
  1. You are your own boss.
  2. Low capital to start.
  3. You enjoy complete secrecy.
  4. All the profits belongs to you.
  5. You can easily change your legal structure.
Disaadvantages of Sole Proprietorship
  1. Very difficult to go on vacation.
  2. Difficult in raising capital.
  3. You pay all the tax.
  4. The business dies without your presence.
  5. You will pay for all liabilities.


2. Partnership

Partnership consists of people (2 - 20 people and not including married couples) coming together with the intentions to utilize their money and skills for the purpose of building a business together.

A member in the partnership may take loan on behalf of the partnership business structure provided the legal agreement permits it.

Please read on the Methods of Payment through Commercial Banks here.

Partnership can be of two forms:

1. General partnership

2. Limited partnership

In general partnership, all the partners contributes their money and skill to manage the business. They equally share the profit from the partnership business structure and bear the loss together. They will also share equally any debt incurred in their business. 

A limited partnership may consist of both a general partnership and the limited partnership.

The limited partners are actually limited in the business because they have no control over the business.

Limited partners serve only as investors in the business and accept a lesser liability when things go wrong in such business; unlike the general partners who operate the business and will accept a greater liability.

Please read on Deferred Payment and its Benefits here here.

Advantages of Partnership
  1. More startup capital is made available.
  2. Easy to establish.
  3. Your partners may be more knowledgeable (and becomes of great value to the business).
  4. There is a better chance of getting loans.
Disdvantages of Partnership
  1. Risk of disagreement between partners.
  2. You may be liable for your partner's debt.
  3. You may be liable for the negative business actions of your partner.
  4. Debt liabilities can be unlimited.


3. Limited Liability Company (LLC)

The Limited Liability Company business structure combines the advantages of sole proprietorship and partnership.

It is formed by a group of people who have legally agreed to the general management of the business.

Tax payment applies to each member of the Limited Liability Company.

Advantages of a Limited Liability Company
  1. There is a limited liability (limited financial burden) on the part of the investor since it's limited to each person's investment.
  2. There is freedom in management as there is no need for a Board of Directors (BoD) and frequent meetings.
  3. There is no limit to the number of individuals involved.
Disdvantages of a Limited Liability Company
  1. It can be capital intensive.
  2. Tax fee may be higher.
  3. There may be strict government laws concerning the business.


4. Corporation

A corporation is a legal entity where a group of people (called investors) buy shares which becomes the evidence of being a member of the corporation.

The cooperation be profit or nonprofit oriented.

The nonprofit corporation will usually have a specific goal outside making profit. These goals are usually of benefit to a certain group of people in the society, for instance, the widows, less privileged, physically challenged and so on.

Please read on Community Service and it's Benefits here.

In a profit oriented corporation, the liabilities and benefits goes beyond a single individual.

Please read more on Production here.

Advantages of a Corporation
  1. Liability is limited to the amount invested by the shareholders.
  2. Easy transfer of ownership via the selling of shares.
Disdvantages of a Corporation
  1. Shareholders may pay tax twice (on their income and dividends).
  2. The investors may have very little knowledge on how the corporation is managed.


5. Franchise

For a franchise to be established, the go-ahead is often given by a parent company (called the franchisor) before the other person or group (called the franchisee) can carry out related commercial activity on behalf of the franchisor.

As an instance, a parent company (the franchisor) that produces drugs may require an individual or a group or another company (the franchisee) to become the official distributor for the franchisor’s product.

Please read on Marketing here.

Note: A franchisee is a individual or company that has been liscensed to do business on behalf of another company called the franchisor.

The franchisee will have to purchase a franchise from the franchisor.

Advantages of a Franchise
  1. Small business owners will enjoy the benefits of the larger business network.
  2. Experience may not be a necessity to begin a franchise since the parent company (franchisor) may provide the trainings needed.
  3. The franchisee may acquire products for free and pay back after sales have been made.
  4. The franchisor may run adverts on their products. (This is of benefit of the franchisee).
Disdvantages of a Franchise
  1. The franchisee may have to pay some amout of money before a franchise can commence.
  2. There is a need for a formal agreement before a franchise can exist.
  3. The attitude of some franchisee or markerters may bring disrepute to the franchisor.


6. Tenants in common

This form of business structure will enable two or more persons acquire the same business space.

Although two or more persons share a business space, it is important to understand that each person is solely responsible for his or her own profit and loss during the business activity.

Please read on Cooperation and Factors that promote Cooperation here.

As an instance, two persons may share a shop with the purpose of uniquely running their respective business in it.

In another example, two unrelated persons can buy a house after which they both live with their families in different apartments or quarters within the same house.

Advantages of Tenants in common
  1. A  tenant may have less than 30% of the property and still enjoy the entire property as the other tenant with 70% ownership.
  2. It can give a tenant the satisfaction and comfort that they can't normally enjoy with regards to their financial strength.
Disdvantages of Tenants in common
  1. A tenant can suddenly sell the share of his or her property without proper consultation of the other tenants. This is why a comprehensive legal agreement should be put in place before becoming tenants in common.
  2. When a tenant dies, his wife and children assumes control of his property and may do whatever they wish with it.


7. Trust

A trust business structure is based on trust and will often require a legal structure to begin with.

The trustee is assigned with the privilege of managing the business or property of another person referred to as the beneficiary.

Please read on the True Meaning of Honesty here.

Advantages of a Business Trust
  1. The beneficiary is not liable for the trust debts.
  2. The tax paid by the beneficiary will be based on the amount of income they receive from the trustee.
Disdvantages of a Business Trust
  1. The trustee works only for the benefit of the beneficiary.
  2. A business trust may require a complicated legal structure.
  3. Starting a business trust may be cost demanding.


8. Association

An association is a group of people coming together with the intentions of supporting each other.

The members of an association are usually of similar occupation. For instance, we may have the Association of Barbers, Associations of Tailors, Manufacturer Association of Nigeria (MAN and so on.

Please read on the Meaning, Types and Characteristics of Pressure Group here.

The members generally contribute to the growth of the association.

Advantages of a Business Association
  1. They enjoy the opportunities and pleasures that comes along with social gatherings.
  2. It gives advantage to a member vying for a political office.
  3. It provide a form of networking which can increase the growth of a business.
  4. The members of an associate promote their trade and cause.
  5. They share a common voice by becoming a pressure group.
Disdvantages of a Business Association
  1. Embezzlement of funds.
  2. Members may be asked to pay unnecessary fines.


9. Joint Venture

This business structure is formed by two or more persons (or organizations) only for a limited time frame.

They carry out their business within the stipulated time before going their separate ways.

Please read on the Types of Cooperation here.

Advantages of a Business Joint Venture
  1. The liabilities are shared.
  2. There is a better chance of networking.
  3. There is a increased capacity (two heads are better than one).
Disdvantages of a Business Joint Venture
  1. The partners may have a hidden aim.
  2. The partners may have different objectives.
  3. One of the partners may be cheated.


10. Municipality

This is a public corporation established by the local government.

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Alfred Ajibola is a Medical Biochemist, a passionate Academician with over 7 years of experience, a Versatile Writer, a Web Developer, a Cisco Certified Network Associate and a Cisco CyberOps Associate.

Amazing facts in Business Studies

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NOTABLE POINTS IN Business Studies

Consumer protection refers to the ways or methods through which consumers enjoy maximum satisfaction from the goods they buy and services rendered to them.

The agencies of consumer protection assists in protecting the consumer rights. These agencies may also be referred to as the organs of consumer protection. Basically, we have three of them, they are:

  1. Government agencies
  2. Independent agencies
  3. Legislation

Please read on Consumer Protection here

One of the responsibilities of the government of every nation is to set up agencies or organizations that will protect the interest of the consumers and invariably, the people.

Below are some of the Government Agencies of consumer protection

  • National Drug Law Enforcement Agency (NDLEA)
  • National Agency for Food, Drug Administration and Control (NAFDAC)
  • Consumer Protection Council (CPC)
  • Rent Tribunal
  • Ministry of Health
  • Ministry of Commerce
  • Ministry of Transportation
  • Ministry of Environment
  • National Wages and Salaries Commission

Please read on the Government Agencies of consumer protection here