Business Mediums

Question 1

Examples of unincorporated businesses:

Answer 1

1. Sole traders
2. General partnerships
3. Limited partnerships

Question 2

Examples of incorporated businesses:

Answer 2

1. LLPs
2. Companies

Question 3

How is a sole trader governed?

Answer 3

General legislation i.e. tax, sale of goods. There is no specific legislation.

Question 4

Explain ownership and management of a sole trader

Answer 4

A single person owns and runs the business, but they can have employees. The sole trader is self-employed.

Question 5

How is a sole trader taxed?

Answer 5

Income tax and CGT (where applicable).

Question 6

What professions can sole traders operate in?

Answer 6

Any.

Question 7

What is the position regarding profits and losses of a sole trader?

Answer 7

They keep all the profits and incur all the losses without limit. There is unlimited liability.

Question 8

What is unlimited liability?

Answer 8

The individual is personally liable for business debts. Their personal assets can be taken to pay a business debt.

Question 9

What happens when a sole trader retires / dies?

Answer 9

The business dies, unless it has been sold.

Question 10

What are the advantages of operating as a sole trader?

Answer 10

1. The owner has complete control over the business.
2. The owner keeps all the profits.
3. Low start up costs.
4. No set up or administrative requirements to start the business.
5. Greater privacy as they don’t need to file financial information with Companies House. However, they must still disclose their identity and an address for service of documents.

Question 11

Can a sole trader have a trading name?

Answer 11

Yes, but this does not alter the fact that it is still a single person running the business.

Question 12

What are the disadvantages of operating as a sole trader?

Answer 12

1. Unlimited liability.
   2.Less reputable status than other business mediums.

Question 13

What are the advantages of operating as a general partnership?

Answer 13

1. Low start up costs.
2. No set up or administrative requirements to start the business.
3. Greater privacy as they don’t need to file financial information with Companies House. However, they must still disclose their identity and an address for service of documents.

Question 14

What are the disadvantages of operating as a general partnership?

Answer 14

1. Unlimited liability.
   2.Less reputable status than other business mediums.

Question 15

When does a company come into existence?

Answer 15

On the date of incorporation on the certificate

Question 16

Explain the ownership and management of companies

Answer 16

Ownership and management are separate.

Shareholders are the owners who invest money in return for shares.

Directors run the company (but shareholders take important decisions)

A person can be a shareholder and director, but each role is different.

Question 17

Who can private companies offer shares to?

Answer 17

They can only offer shares to a person already connected with the company or certain individuals (i.e. specialist investors who already know the risks involved).

They cannot offer shares to the public.

Question 18

What are the advantages of operating as a company?

Answer 18

o Limited liability due to SLP
o Greater status and reputation.
o The business will own its assets so greater security is available.

Question 19

What are the disadvantages of operating as a company?

Answer 19

o Formalities and costs to set up
o Publicity of information - lots more information is available to the public
o Ongoing administrative requirements

Question 20

Why are there additional obligations on PLCs?

Answer 20

Because they can offer shares to the public.

Question 21

What are the additional obligations on a PLC?

Answer 21

o The constitution must state that it is a PLC
o The words ‘public limited company’ or ‘plc’ must be included at the end of the company name
o Collectively, the SHs must invest at least the ‘authorised minimum’ which is currently £50,000
o The SH must pay at least ¼ of the nominal value of each share they hold, PLUS the whole of any share premium

Question 22

What is the current authorised minimum?

Answer 22

£50,000

Question 23

How does a company become a PLC?

Answer 23

1) it starts as an LTD and becomes a PLC; or
2) it registers as a PLC on incorporation

It will only be incorporated if it meets the requirements.

Question 24

Why might a company choose to register as a PLC over an LTD?

Answer 24

Because the title brings a lot of kudos and they can sell shares to the public

Question 25

What are the two categories of PLC?

Answer 25

o Publicly traded companies; and
o Unlisted public company

Question 26

What is a publicly traded company?

Answer 26

A publicly traded company is a PLC that has applied to join the UK stock market and sells shares on there

Question 27

How does a PLC become a publicly traded company?

Answer 27

They can make an application once the PLC has reached a certain size, reputation or growth

Question 28

What is an unlisted public company?

Answer 28

An unlisted public company is a company not on the UK stock market. They can still sell shares to the public, but it is harder to find buyers.