Business structure Flashcards
What is sole proprietorship
It is a business conducted by a natural person - the sole proprietor or sole trader - Being self-employed - having your own business
Characteristics of sole proprietorship
No distinction between personal and business property
No distinction between his business debt and his debt
If his business makes profit that is his profit - no distinction between ivan smith and ivan smiths trading business (legally speaking)
Just need to set up a business - you’ll be a sole proprietor
Disadvantages of sole proprietorship
Disadvantages: if you get into debt and someone sues you - worse consequences is you go bankrupt - if you own a house it can get taken from you
Liability and debt
Advantages of sole proprietorship
Advantages: you can just start right away - very informal
Structures based on artificial legal persons
these structures are called corporations
What are corporations?
Definition:
“a group of individuals … deemed in law to be a single entity .. the corporate entity is legally distinct from all the individuals who compose it, has legal personality in itself and can accordingly sue and be sued, hold property and transact, incur liability, and generally act as if it were a natural person.”
Characteristics of corporations
Corporations- can be a super small business but is still a corporation
Has legal personality - it can sue, it can be sued, it can hold property, it can transact, incur liability
Generally act as if it were a natural person
Distinct from the individuals that make it up
What is a fundamental feature of a corporation?
separate legal personality
Differences between artificial legal persons and sole proprietorship
Corporate - it can change who works in it - if someone in the company dies the company continues - theoretically corporate legal person doesn’t die whereas natural does (business dies)
Corporation does not physically exist - exists because law says it exists - has no physical existence
If corporation does something illegal, you cant put a company in jail can only put people in jail
Corporation can grow unlimitedly - whereas human have limits for how we grow
Combining - human beings cant but corporations can
Not the shareholders getting debt it’s the company
Solomon v Solomon
Established idea of corporate legal personalities
Mr salomon was a sole trader and wanted to form a company - transfers all his assets to the company and in return he gets 20,000 shares in company - things done change however he has 6 family members who have 1 share each - he has absolute control - goes from sole trader to company
Business gets into debt and goes bankrupt - who is liable for the debt of the company - company or Mr salomon
Was appealed to house of lords - mr salomon was not reliable - company is liable for the debt of the company
Structures based on contract
partnerships (often called a firm) - Two or more people who enter into business and set up business through a contract
joint ventures -
franchises
Partnerships
Definition: a business in common with a view to profit
May be a formal agreement (Partnership deed - a written contract and formal agreement)
Need to be two or more legal persons or people in charge of the management of a business
Needs to be two bosses
Need to intend to make a profit - charity that doesn’t intend to make a profit will never go into partnership
Terms of the agreement would be implied rather than expressed
Partnerships can be entered into informally
Features of partnership
Each partner is personally liable for the debts of the partnership - you can potentially sue any partner as each of them is personally liable
Partner is just like a sole trader, can potentially lose all your assets
Partners are jointly and severally liable - individually liable for entire amount of debts and partners together are jointly liable for debt
Partners can legally bind you in contracts as they are acting as their agent - have to be careful with who you trust - a fiduciary relationship
Dissolution - the partnership will come to an end when any of the partners change - agree partnership is dissolved - when one of the partners leaves or dies, technically it dissolves - new partnerships can arise
The partnership does not have a separate legal personality - technically it is a new partnership
Limited Partners Act 2008
What is a limited partnership:?
a limited partner is a hybrid between a company and a partnership
- designed to allow investors to invest in a partnership without incurring liability
Difference between General partners and limited partners
- General partners manage the business and have full liability
- Limited Partners only contribute capital to and only liable for the amount of capital
