Business Mediums Flashcards
Examples of unincorporated businesses:
- Sole traders
- General partnerships
- Limited partnerships
Examples of incorporated businesses:
- LLPs
- Companies
How is a sole trader governed?
General legislation i.e. tax, sale of goods. There is no specific legislation.
Explain ownership and management of a sole trader
A single person owns and runs the business, but they can have employees. The sole trader is self-employed.
How is a sole trader taxed?
Income tax and CGT (where applicable).
What professions can sole traders operate in?
Any.
What is the position regarding profits and losses of a sole trader?
They keep all the profits and incur all the losses without limit. There is unlimited liability.
What is unlimited liability?
The individual is personally liable for business debts. Their personal assets can be taken to pay a business debt.
What happens when a sole trader retires / dies?
The business dies, unless it has been sold.
What are the advantages of operating as a sole trader?
- The owner has complete control over the business.
- The owner keeps all the profits.
- Low start up costs.
- No set up or administrative requirements to start the business.
- 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.
Can a sole trader have a trading name?
Yes, but this does not alter the fact that it is still a single person running the business.
What are the disadvantages of operating as a sole trader?
- Unlimited liability.
2.Less reputable status than other business mediums.
What are the advantages of operating as a general partnership?
- Low start up costs.
- No set up or administrative requirements to start the business.
- 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.
What are the disadvantages of operating as a general partnership?
- Unlimited liability.
2.Less reputable status than other business mediums.
When does a company come into existence?
On the date of incorporation on the certificate
Explain the ownership and management of companies
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.
Who can private companies offer shares to?
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.
What are the advantages of operating as a company?
o Limited liability due to SLP
o Greater status and reputation.
o The business will own its assets so greater security is available.
What are the disadvantages of operating as a company?
o Formalities and costs to set up
o Publicity of information - lots more information is available to the public
o Ongoing administrative requirements
Why are there additional obligations on PLCs?
Because they can offer shares to the public.
What are the additional obligations on a PLC?
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
What is the current authorised minimum?
£50,000
How does a company become a PLC?
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.
Why might a company choose to register as a PLC over an LTD?
Because the title brings a lot of kudos and they can sell shares to the public
What are the two categories of PLC?
o Publicly traded companies; and
o Unlisted public company
What is a publicly traded company?
A publicly traded company is a PLC that has applied to join the UK stock market and sells shares on there
How does a PLC become a publicly traded company?
They can make an application once the PLC has reached a certain size, reputation or growth
What is an unlisted public company?
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.
