2 - Business Structures Flashcards
What is a sole proprietorship?
A sole individual carrying on some form of business activity on their own account (such individuals are also known as ‘self-employed’ or as ‘independent contractors’).
What is the difference between a sole practitioner and a sole trader?
A sole trader is a sole proprietor who is not a professional. A sole proprietor who is a professional (such as a lawyer or accountant) is known as a sole practitioner.
Explain the advantages and disadvantages of running a business through a sole proprietorship.
ADVANTAGES:
- easy to set up;
- subject to much less regulation than other forms of business;
- required to disclose much less information than other business, so can be run with more privacy; and
- it is easy to dissolve.
DISADVANTAGES:
- may find it difficult to raise finance, and so may have to use their own money; and
- the liability of the sole proprietor is personal and unlimited.
How can a sole proprietor raise finance?
- Invest their own money in the business.
- Obtain a loan.
- Seek investment from outside parties.
What are the three types of partnership that can be created?
- Partnership (aka ‘ordinary’ or ‘general’ partnership)
- Limited Partnership
- Limited Liability Partnership
Explain what ss.5 and 10 of the Partnership Act 1890 state.
Section 5 of PA 1890 states that every partner is an agent of the firm and his other partners for the purpose of the business of the partnership. In other words, a partner can bind the firms and his co-partners to an agreement with a third party.
Section 10 of PA 1890 states that each partner is vicariously liable for the wrongful acts or omissions of another partner, as long as the partner was acting within the ordinary business of the partnership and within his authority.
How does a limited partnership differ to an ordinary partnership?
Differ in two ways.
- An ordinary partnership is created and governed by PA 1890, whereas a limited partnership is created and governed by the Limited Partnerships Act 1907.
- In an ordinary partnership, each partner’s liability is personal and unlimited, as well as being joint and several. Conversely, a limited partnership can have limited partners, whose liability will be limited to an amount as specified in the registration document. Note, however, that a limited partnership must have one partner (known as a general partner) whose liability will be unlimited.
Explain the difference between an LLP and an ordinary partnership.
See P.380 of Textbook
What are the five types of company that can be created under the CA2006?
- A public company limited by shares;
- A private company limited by shares;
- A private company limited by guarantee;
- A private unlimited company with a share capital; and
- A private unlimited company without a share capital.
What are the differences between a public and private company?
Share Capital - YES vs NO;
Liability of members - MUST BE LIMITED vs LIMITED OR UNLIMITED;
Can offer to sell securities to the public at large - YES vs NO;
Can trade securities on a stock exchange - YES vs NO;
Min. capital requirement - YES (£50k) vs NO;
Min. number of directors - TWO vs ONE;
Suffix - ‘plc’ or ‘public limited company’ vs ‘Ltd’ or ‘Limited’;
Required to appoint a company secretary - YES vs NO; and
Can be classified as micro-entity, small or medium sized - NO vs YES.
In a limited company, to what extent is the members’ liability limited?
The method by which the members’ liability is limited will depend on whether the company is a company limited by guarantee or a company limited by shares.
In a company limited by shares, the liability of the members of such companies is limited to the amount that is unpaid on their shares.
In a company limited by guarantee, the liability of the members is limited to the amount they have undertaken to contribute in the event of its being wound up. This amount will be stated in the statement of guarantee that was submitted to Companies House when the company was incorporated (and may also be stated in the Articles).
What is the difference between a quoted company and a listed company?
Listed company - has a class of its securities listed on the UK’s official list;
Quoted company - share capital (i) has been included on the official list; (ii) is officially listed in an EEA state; or (iii) is admitted to dealing on the NYSE or NASDAQ.
How can a private company re-register as public and vice versa?
A private company can re-register as public by passing a special resolution, delivering specified documents to Companies House and complying with certain conditions placed upon public companies. A public company can re-register as private by passing a special resolution and delivering specified documents to Companies House.
