Chapter 2 - Different Types of Business Entity

Question 1

• Sole Traders

Answer 1

• Owned and managed by a single person
• The owner is legally liable for all liabilities
• No laws or accounting standards mandatory
• The accounts are private to the sole trader and HMRC

Question 2

• Partnerships

Answer 2

• Managed by two or more people
• Each partner has joint and several liability
• Governed by the partnership act 1890
• The partnership act is used in the absence of a partnership agreement
• It is best practice to form a partnership agreement to avoid the barring of partnership salaries and equal profit share
• Financial Statements are private between the partners and HMRC

Question 3

• Limited Companies

Answer 3

• LTD companies are a separate legal entity
• Owned by shareholders, run by directors
• Shareholders losses are limited to initial investment
• Unpaid shares (unlikely) will need to be paid if the company becomes insolvent
• Must prepare annual financial statements in compliance with UK legislation and accounting standards
• Statements must be filed to Companies House and are available for public view

Question 4

• Limited Liability Partnerships

Answer 4

• A LLP is a separate legal entity
• Each member’s liability is limited to their initial investment
• LLPs have a partnership agreement that sets out how the LLP will be managed
• Must prepare annual financial statements in compliance with UK legislation and accounting standards
• Statements must be filed to Companies House and are available for public view