1. Different Types of Business

Question 1

What is a sole trader

Answer 1

A business that is not legally separate from its sole owner

Question 2

Are any formalities needed to incorporate a sole trader business?

Answer 2

No

Question 3

Does a sole trader need to be registered at HMRC for tax purposes?

Answer 3

Yes

Question 4

What type of liability does the owner of a sole trader business have?

Answer 4

Unlimited Personal liability (for all its debts NOT limited liability)

Question 5

Who owns the assets of the business in a sole trader business?

Answer 5

Sole trader

Question 6

What are the 2 ways a Partnership will be governed?

Answer 6

Either (a) Partnership Agreement OR IF NONE (b) Partnership Act 1890 (PA 1890)

Question 7

What is a Partnership?

Answer 7

Where 2 or more people are ‘carrying on a business with a view of making profit’

Question 8

Does a Partnership have a distinct legal personality?

Answer 8

No

Question 9

Are any formalities needed to make a Partnership?

Answer 9

No (∴ Partnership can be made unintentionally)

Question 10

What is recommended for partners in a Partnership to enter into?

Answer 10

Partnership Agreement

Question 11

How are partners in a Partnership liable?

Answer 11

Unlimited Personally liable - jointly and severally liable (NOT limited liability)

Question 12

What is a Limited Liability Partnership (LLP)?

Answer 12

Cross between a company and a partnership

Question 13

Does an LLP have a separate legal personality?

Answer 13

Yes

Question 14

What type of liability does an LLP have?

Answer 14

Limited

Question 15

What does limited liability mean?

Answer 15

Owner(s) of the business are only liable to extent of their investment / initial capital contribution in the company

Question 16

Does an LLP have any formalities? If so, what are they?

Answer 16

Register at Companies House

Question 17

Does death, bankruptcy or the departure of a member affect the business?

Answer 17

No (separate legal personality)

Question 18

What are the two possible ways an LLP will be governed?

Answer 18

(1) Partnership Agreement OR IF NOT MADE (2) Limited Liability Partnerships Regulations 2001

Question 19

What is a Limited Company?

Answer 19

Business with a separate legal personality

Question 20

What type of liability does a shareholder(s) in a Limited Company limited by shares have? What does this mean?

Answer 20

Limited liability - extent of shareholder liability is any unpaid, nominal value of their shares

Question 21

Does a Limited Company have a separate legal personality?

Answer 21

Yes

Question 22

What are the two key features of Limited Companies?

Answer 22

(1) Separate legal personality
(2) Limited liability for members / shareholders

Question 23

Where must a Limited Company be registered?

Answer 23

Companies House

Question 24

What does a business being a ‘separate legal personality’ mean?

Answer 24

People who own and run the company are separate from the company itself

Question 25

A Limited Company is a 'separate legal personality'. What are 3 examples of what this means a company is able to?

Answer 25

(1) Own property (2) Enter into contracts (3) Be party to legal proceedings

Question 26

Of the 4 main business types (1) Sole trader (2) Partnerships (3) LLPs and (4) Limited Companies, who can grant floating and / or fixed charges?

Answer 26

Fixed charges only: (1) Sole trader (2) Partnership Both fixed and floating charges: (1) LLPs (2) Limited Companies

Question 27

What 2 business types are incorporated?

Answer 27

(1) Limited Companies (2) LLPs

Question 28

What are 3 advantages of incorporation?

Answer 28

(1) Limited liability (2) Separate legal personality (3) Grant fixed AND floating charges

Question 29

What are 2 major disadvantages of incorporation?

Answer 29

(1) Complexity and cost of forming company (2) Regulatory compliance - e.g. with CA 2006

Question 30

What are the 2 types of limited company?

Answer 30

(1) Private limited company (2) Public limited company

Question 31

What ways can (1) Private limited company (2) Public limited company, be limited by?

Answer 31

(1) Private - Shares OR guarantee (2) Public - Shares

Question 32

For a Public limited company (a) What is the minimum share capital requirement? (b) What is minimum % of shares that must be paid up?

Answer 32

(a) £50,000 (b) 25%

Question 33

For a Private limited company (a) What is the minimum share capital requirement? (b) What is minimum % of nominal value of the share that must be paid up?

Answer 33

None

Question 34

What is the minimum number of directors for (1) Private limited company (2) Public limited company?

Answer 34

(1) Private - 1 (2) Public - 2

Question 35

Is a company secretary required for (1) Private limited company (2) Public limited company?

Answer 35

(1) Private - NO (2) Public - YES

Question 36

What are the 3 requirements for a company to be 'public'?

Answer 36

(1) Constitution states it's a 'public company' (2) Words 'public limited company' or 'plc' at end of company name (3) Minimum share capital of £50,000 and 25% of the nominal value of each share must be paid up

Question 37

What is the key difference between a private and public company in terms of who they can offer shares to?

Answer 37

Public - offer shares to the public Private - CANNOT offer shares to the public