1.1 Business - Types Flashcards
What are the key features of a sole proprietorship?
- Business owned by one person (sole trader)
- NO distinction between owner + business
- NO registration fees to pay (except register with HMRC > Tax + NI purposes)
- Operate on own/employ others
- Personal liability for debts
- Low turnover
- Few employees (flexible/adaptable)
- Capital (personal loan, easily recoverable)
- Continuity (death, bankruptcy, retirement)
- Transferability (complicated)
- NO disclosure (confidential)
What are the key features of a partnership?
- 2 or more persons
- Common goal (profit)
- Each partner > Personal liability for debts
- Maj decisions/Partnership agreement (may be cumbersome for large partnerships)
- Capital (personal loan, easily recoverable)
- Continuity (death, bankruptcy, retirement)
- Transferability (complicated)
- NO disclosure (confidential)
What are the key features of a general partnership?
- Each partner > Personally liable for debts
- Joint and several liability (lose all investments/owned property > sell off)
- NO formalities
What are the key features of a limited partnership?
- General partners > Liable for debt
- Limited partners > Liable for investment
- Joint and several liability (lose all investments/owned property > sell off)
- NO formalities
What are the key features of a private company?
Separate legal personality (Co v D/SH/Member)
For profit/NOT profit
SHs (ownership) (Companies Act/AA - Amend to ease flexibility)
- Private (Investor - Shares; Banks - Loans)
- State
- Appoint/Remove/Increase no. Ds
Ds (daily management)
- Hire managerial staff
Formalities
- Expensive, time-consuming, complex
- Stringent accounting and reporting reqs
- Draw up detailed annual accounts
- Prepare annual confirmation statement
- Pay fee on filing with Registrar
Commercial responsibility
- Greater (but reluctant with sole traders, non-professional partnerships)
- Can borrow more easily
- Can give floating charges
Capital
- Investors > Subscribe
- Banks > Loans
- Hard to extract from Co (SHs/Regulations can increase/decrease capital)
Continuity
- Changes in memebrship > NO effect
- Own name
Transferability of shares
- Straightforward (subject to Articles)
Disclosure
- Ongoing
- Extensive
What are the key features of a public (unlisted) company?
Constitution
- SH (private investors)
Certificate of incorporation
- Confirms public identity
- Limited by shares
- Min. share capital (£50k)
- Each share must be 25% paid up (£12.5k)
Formalities
- CA 2006
- Corporations Regulations 2018 (Corporate Governance Reporting Obligations)
NO public trading (over the counter instead > avoid exchange of controls)
- Too small to qualify
- NO minimum no. SHs
- Very limited business activity
- NOT seek public interests
- Avoid disclosure reqs
- Raise funds outside market
Delisting
- Remain unlisted
- Listed then delisted (voluntary/involuntary) based on no public trading reasons
More control over business operations
What are the key features of a Community Interest Company (LLC)?
Form
- Private company (limited by guarantee - most companies/shares)
- Public company
Laws (same as other UK company)
- CA 2006
- Company/Insolvency Law
- CA 2004
- Community Interest Company Registrations 2005 (asset lock, benefit to identical community)
Purpose of laws
- Level of governance
- Members’ rights and duties
- Statutory filing reqs
- Insolvency, accounting, governance
Obligations
- Community interest test (benefit to community?)
- Adopt statutory clauses in Constitution (lock assets > benefit to community?)
- Deliver annual CIC report with accounts > Public record
Advantages
- Familiar, well understood, flexible and adaptable
- Quick, easy, inexpensive to set up
- Statutory clauses > Legal protection vs demutualisation/wind fall profits to SHs and Ds (no need for necessary checks and balances of mutual/charitable statutes)
Benefit to community
- Social business
- Charitable
- Not-for-profit projects
What are the key features of a limited company?
Separate legal personality
- LC
- D/SH/Member
Debt liability
- LC (NOT SHs - corporate veil)
Personal guarantee > Bank
- LLC is liable
Unpaid share capital
- SH/Member to pay (called on by Co/Liquidator)
What are the key features of a Company Limited by Shares?
Persons
- Agree to become members
- Names entered on Register of Members
TP liability
- Limited to full nominal value of their shares (even if WU)
What are the key features of a Company Limited by Guarantee?
Persons
- NO share capital given
Company
- Derives income from Person’s share subscription
TP liability
- Amount undertaken to pay (Statement of Guarantee filed on incorporation)
Purpose
- Charitable
- Social
- Non-trading
What are the key features of an Unlimited Company?
Constitution
- +1 D
- +1 Member
TP liability
- Unlimited
TP debts
- TP to claim in liquidation
- Liquidator calls for distributions from Members to TPs
- Thus not widely used
Residency
- NO residency requirement
- Registered office > Physical address in UK
Admin
- NO need to file accounts w/ Registrar (Public has no access to financial statements)
Continuity
- Death of Member
- Separate persona (make contracts, hold property) (unlike partnerships)
