2 - Business structures Flashcards
3 types of ‘unincorporated business structures’
Sole proprietorships
Ordinary partnerships
Limited partnerships
Two types of sole proprietor - and difference
Sole practitioner - professional
Sole trader - non-professional
Define sole-proprietor
Individual carrying on some form of business activity on their own account
How is a sole proprietorship created?
Individual registers themselves as self-employed with HMRC
3 rules/regulations for sole proprietors to comply with
Filing own tax returns
Registering for VAT (at a certain point)
Register with HMRC for PAYE (if taking on employees)
3 ways in which sole proprietors can raise money without converting to different business structure
Invest own money
Obtain a loan
Seek investment from outside persons
How is a sole-proprietorship dissolved?
Informing HMRC that they are no longer self-employed, having tied up any loose ends prior to this
Three different types of partnership
Ordinary partnership
Limited partnership
Limited liability partnerships
Definition of partnership according to The Partnership Act 1890
The relation which subsists between persons carrying on a business with a common view of profit
Need a partnership agreement be in writing?
No, but is usually us in order to avoid disputes
Must a partnership have a partnership agreement?
No
What if there is no partnership agreement?
10 rules are set out by ss. 24 and 25 of PA1890 on how the partnership is to be run.
4 examples of rules set out in PA1890
- Profit sharing
- Taking part in management
- Prohibition on admittance as partner
- Prohibition on partner being expelled unless all other partners agree
Who is bound by agreement by one partner of partnership with third party?
That partner, the partnership and the other partners
3 main examples how can a partnership be dissolved?
If all the partners agree
Upon occurrence of particular event (if agreement allows)
By the court, following application from a partner
Key difference between limited partnerships compared to companies and LLPs
Limited partnerships are not incorporated and do not have a corporate personality
What is the composition of a limited partnership?
At least one general partner, and at least one limited partner
(Limited partners contribute stated amount, but general partners responsible for all debts after that)
What can a limited partner not do in a limited partnership?
Get involved in the management of the firm
What is the key difference between ordinary partnerships and LLPs?
The liability of the members of an LLP is limited - the LLP is a body corporate and so has a separate personality
In the event of an LLP’s winding up, where would the amount each member is required to contribute typically found?
LLP’s partnership agreement
6 factors affecting the structure of a business
- Ownership (who, how many)
- Liability
- Regulation
- Ability to raise money
- Taxation
- Purpose (profit or non-profit)
5 types of company that can be registered
- Public limited by shares
- Private limited by shares
- Private limited by guarantee
- Private unlimited by with share capital
- Private unlimited without share capital
— - Public limited by guarantee is technically possible
5 key differences between public and private companies
- Private companies are prohibited from offering their securities to the public at large or on a stock exchange
- Private companies can engage in business prior to being issued with a trading certificate
- Private companies have no minimum capital requirement
- Private companies need not appoint a CoSec
- Private companies need not have two directors
Define listed company
A company that has a class of securities listed on the UK’s ‘Official List’
Define quoted company
A company whose share capital is:
- included on the UK’s ‘Official List’
OR
- officially listed in an EEA state
OR
- admitted to dealing on the NYSE or NASDAQ
Define traded company
A company whose shares carry rights to vote at general meetings, and which are admitted to trading on a regulated market in an EEA state by or with the consent of the company
2 of 3 conditions for micro-entity
- not more than 632k turnover
- not more than 316k balance sheet total
- not more than 10 e’ees
2 of 3 conditions for small company
- not more than 10.2m turnover
- not more than 5.1m balance sheet total
- not more than 50 e’ees
2 of 3 conditions for medium company
- not more than 36m turnover
- not more than 18m balance sheet total
- not more than 250 e’ees
What is classified as a large company?
Any company that is not a micro-entity, small or medium-sized
How is market capitalisation calculated?
Share price multiplied by number of shares issued
Why is it important to know if a company is FTSE 100, 250 0r 350?
Certain laws and governance policies apply only to FTSE companies
Which 3 vehicles might a charity trade under?
- Limited by guarantee
- Community interest companies
- Charitable incorporated orgainsations
5 different forms of company re-registration
- Private to public
- Public to private limited
- Private limited to private unlimited
Private unlimited to private limited - Public to private unlimited
How does a private company re-register as public?
Passing special resolution, delivering it and RR01 to CH, complying with certain conditions
How does public company re-register as private limited?
Passing special resolution, delivering it and RR02 to CH
4 benefits to a sole proprietorship
- Simple to operate
- Able to take on employees
- Not required to disclose business info
- Less regulation
2 disadvantages of sole proprietorship
- No separation of personality and liability
- Difficult to raise finance
If a promoter is forming a company, which 3 decisions do they have to make? in order
- Limited or unlimited liability
- Limited by shares or guarantee
- Private or public
4 advantages to trading as a partnership
- Easy to to set up and run
- Can keep all affairs private
- Flexible business structure
- Shared responsibility and decision making
4 disadvantages to trading as a partnership
- Difficulties raising finance
- No formal process for resolving disagreements
- Default position is that partnership ends when partners leave
- Jointly and several unlimited liability for debts
For what reason were LLPs conceived?
As a vehicle for prof service providers
