2. Business structures

Question 1

What is sole proprietorship?

Answer 1

A sole individual carrying on some form of activity on their own account
Not incorporated
Business is not distinguishable from the person (owner)
Sole pr - owns all the assets, responsible for all debts and liabilities

Question 2

What is the difference between a sole practitioner and a sole trader?

Answer 2

A sole trader is a proprietor who is not professional

A sole proprietor who is professional is a sole practitioner

Question 3

Advantages and disadvantages of sole proprietorship?

Answer 3

Easy to set up
Subject to less regulation
Less disclosure
Easy to dissolve

Disadvantages:
Difficult to raise finance
Liability is personal and unlimited

Question 4

Partnership

Answer 4

A partnership is an unincorporated association

Pship - is the relation which subsists between persons carrying on business in common with a view of profit (PA 1890)

sharing profits and income

ownership of property is enough to evidence a partnership

Question 5

Limited partnership

Answer 5

• Limited partnership are partnerships with at least one - General partner and one or more limited partners
• Limited partners contribute an agreed sum to the partnership and are not liable for the debs and obligations of the firm beyond that amount. Limited partners may not participate in management and have no power to bind the firm

Example of limited partnership - Venture Capital Fund

Question 6

Limited Liability Partnerships

Answer 6

• Governed under LLPA 2000
• Professional firms (accountants)
• Incorporated entities
• LLP are separate legal entities from their members, yet are tax-transparent

Question 7

Types of company

Answer 7

Registered companies:

• Limited by shares - Private - Public. Pubic: quoted/unquoted
• Limited by guarantee
• Unlimited
• CIC - limited by guarantee or limited by shares. CIC Limited by shares - private/public

Question 8

What are the features of limited companies?

Answer 8

• Separate legal personality
• Limited liability
• transferrable shares
• a legal framework (to provide remedies for problems arising out of the separation of ownership (by shareholders) and control (by board of directors)
• asset shielding

Question 9

What are the advantages of private co?

Answer 9

AGM not required
Meetings only to remove directors (s168) or auditros (s.510)
No authorised min nominal value of allotted capital
Can pass written resolutions of members
Can give financial assistance to purchase own shares
Can purchase shares and redeem shares out of capital
Can reduce share capital without court approval by special resolution and a solvency certificate
Can qualify for small co regime for accounts and reports and small co exemption from audit (plc can’t)

Question 10

What types of unincorporated associations can there be?

Answer 10

• CHARITABLE INCORPORATED ORGANISATIONS incorporated organisations (co limited by guarantee)
• COMMUNITY INTEREST COMPANIES
  Community Interest Companies if qualify 3 criteria:
  1. must be carried out for benefit of the community
  2. subject to asset lock (business run for the benefit of the community)
  3. must file community interest annual reports available to public.
  UK MUTUAL ORGANISATIONS
• Cooperative societies and community benefit societies
• Friendly societies
• credit unions
• building societies