5. Law: Sole Traders | Partnerships | Dissolving a Partnership | Tax Payments for Sole Traders & Partnerships | Limited Liability Partnership Flashcards
Sole traders run their business as?
an individual
as self-employed
What happens to a sole traders business profits?
they get to keep all profits after tax
Who is personally responsible for any losses that a sole traders business makes?
the sole trader
Give an example of a small trader business?
a single person who owns and operates their own lorry
The moment you do what makes you a sole trader?
offer goods & services
Explain “Profit retention” as sole trader advantage
keep all the profits of their business
Explain “Private data” as a sole trader advantage
information about sole traders is kept private unlike Ltd Companies
Explain “Manoeuvrability” as a sole trader advantage
can make & implement decisions quickly because no need to discuss with other decision makers
Explain “Control” as a sole trade advantage
can run their business anyway they want to without the interference of others
Explain “Local” as a sole trader advantage
can offer a more personal service with local community
Discuss 5 advantages of being a sole trader
profit retention
private data
manoeuvrability
control
local
Explain “Liability” as a sole trader disadvantage
- unlimited liability
- sole traders are not separate entity from the law
- if business goes into debt < all assets inside & outside business is liable
Explain “Capital” as a sole trader disadvantage
more difficult to access start up capital to speed up growth
Explain “Economies of scale” as a sole trader disadvantage
harder to buy at scale vs larger businesses < more capital
owner has to charge higher prices
goods & services
Explain “Decisions” as a sole trader disadvantage
all the decisions have to be made by the sole trader
success or failure of business relies on one person without support from others
Discuss 4 disadvantages of being a sole trader
liability
capital
economies of scale
decisions
How many people do you need to form a partnership?
two or more
Explain “merge skillsets” as an advantage in a partnership?
by allocating work according to their skills < like…
Explain “shared responsibility” as an advantage in a partnership?
support each other
problem solving
decision making
Explain “Capital” as an advantage in a partnership?
more partners
more start up capital < faster rate of growth & therefore profitability
economies of scale < reduced cost of goods & services
Explain “Form manage & run” as an advantage in a partnership vs companies?
formation laws < less strictly regulated than companies
easier to manage & run < if partners can agree < partners have full say < no shareholders
Discuss 4 advantages of a partnership
merge skillsets
shared decisions
capital
control - no shareholders
Explain “Conflict” as a disadvantage in a partnership?
conflict can damage the business & the relationships within the business
how things should be done
who should do what
where the business should go
Explain “Agreement” as a disadvantage in a partnership
all partners have to agree for decisions to be approved slowing down business
Explain “Liability” as a disadvantage in a partnership
unlimited liability
all partners share the liability of the business
Explain “Taxation” as a disadvantage in a partnership?
pay tax same as sole traders
the more profitable the partnership < the more personal taxation at a certain level vs limited company
Discuss 4 disadvantages of a partnership
liability
taxation
disagreements
agreement
What 5 reasons would cause a Partnership to be dissolved?
by mutual agreement of all partners
the business has no further purpose
if there is a death or bankruptcy of a partner
it if becomes unlawful to continue
by a court judgement (often when one of the partners becomes mentally incapable)
After a partnership has been dissolved which four need to be notified?
The bank
Tax Office
Suppliers
Customers
After a partnership has been dissolved & the relevant people have been notified what else needs to be done?
the partners need to agree on
how to divide the business assets
how the business name may be used in the future
When do Sole Traders & Partnerships have to file tax returns?
by the 31st of January from the tax year that ended on 5th April of the previous year
What type of tax is paid by Sole Traders & Partnerships & who is the tax payable to?
Income tax is paid on any profits
HM Revenue & Customs
As a sole trader or partnership how many years & from what date must you keep all financial records for?
five years
after the 31st January submission deadline of the relevant tax year
What is a Limited Liability Partnership (LLP)?
it’s a hybrid by combing the features of a traditional partnership & Ltd company
it’s neither a partnership nor a company
What are partners also called in a Limited Liability Partnership & what else do you know about this?
partners are also called members or “corporate members”
members can be “human” or “corporate”
a limited company can count as a legal person
What is the specific distinction of the word member in a LLP?
it’s a way to distinguish limited liability unlike partners in a partnership
How many members do you need to form an LLP?
two or more
Do Limited Liability Partnerships have shareholders?
LLPs don’t have directors, they have partners
LLPs don’t have shares or shareholders, they have members
Give examples of who generally form a LLP?
a couple of solicitors or accountants who want to go into partnership
they want to keep their practice small with a small number of employees
they want a “professional partnership” with the benefit of limited liability
What does limited liability mean for an LLP?
it’s a separate legal entity & the LLPs member’s liability is limited
financially - members are only responsible for any debt equal to the amount of capital they initially invested
legally - protected from being sued
legally - legally protected for being responsible for negligence or misconduct of any other members
How are corporate members taxed in an LLP?
pay income tax based on profits of business
same as sole trader or partnership
What is in the members agreement?
allocation of profit
liabilities
members duties
procedure of addition or removal of members
dismissal procedure
