Business Structures Flashcards
What is the set up cost of a sole trader?
A sole trader has no set up costs and can therefore start trading immediately
What is the liability risk of a sole trader?
A sole trader faces unlimited personal liability as it is not a separate legal entity. Individual’s personal assets, such as their home and cars, can be sold to meet business debts.
Define the structure of a sole trader.
There is no formal structure
What are the privacy benefits of being a sole trader?
A sole trader enjoys complete privacy as there is no requirement for publicly filed accounts or other formal disclosures.
Explain the formalities involved in operating as a sole trader.
There are no formalities such as Companies House filing or procedural requirements for running a business as a sole trader.
How are sole traders financed?
Through personal capital injection of cash by the sole trader personally. Contracts are formed between the individual themselves and third parties, so an individual can take out a personal loan.
What is the set up costs of partnerships?
Partnerships have no set up costs, allowing them to start trading immediately
Define the liability of partners in a partnership.
Partners have unlimited joint (in contract) or joint and several liability (in tort) for the debts and obligations of the partnership, meaning personal assets may be at risk.
What is the structure (entity) of a partnership?
A partnership is not a separate legal entity.
What are the formalities required to run a partnership?
There are no Companies House filing or procedural requirements for running a partnership. Partnerships can be formed without any formal agreement or even intention.
Explain the privacy aspect of partnerships.
Partnerships offer complete privacy, with no requirement for publicly filed accounts.
How are partnerships financed?
Contracts are formed between third parties and the partners as individuals. Individual partners can take out personal loans or inject their own cash into the partnership.
What are the set up costs of a Limited Liability Partnership?
There are costs involved including legal fees
What is the liability of partners in an LLP.
Partners in an LLP have limited liability, meaning their liability to third parties is restricted to the amount they agreed to pay under the LLP partnership agreement.
What is the structure of an LLP?
The organizational structure of an LLP is flexible and should be decided between the partners in a formal written Members’ Agreement.
What sort of entity is an LLP?
LLP has a separate legal personality.
Explain the privacy of an LLP.
LLPs are required to file annual accounts and other information
How are LLPs financed?
As a separate legal entity, an LLP can borrow in its own name and create floating charges, which are a type of security favored by banks.
What formalities must an LLP comply with
LLPs must be registered at Companies House in the same manner as companies.
What are the set up costs of a company?
There are costs involved in incorporating a company including legal fees.
What is the liability of a company?
The liability of shareholders is limited to the amount unpaid on their shares, meaning they are not personally responsible for the company’s debts beyond their investment.
What is the structure (entity) of a company?
A company is a separate legal entity, meaning it exists independently of its owners, who are not personally liable for the company’s debts.
What are the formalities required for a company to operate?
A company must be registered at Companies House .
Explain the privacy of a company
Companies must make various filings and disclosures at Companies House, which can be onerous, especially for small private companies.