LEGAL ASPECTS OF BUSINESS Flashcards
1
Q
STARTING UP A BUSINESS
A
- Important to decide which structure best suits you
- This will affect
o Which authorities you will have to notify about your business
o The tax and NI you will have to pay
o The records and accounts you have to keep
o Financial liability if the business runs into trouble
o The ways your business can raise money
o The way management decisions are made about the business
2
Q
3 AVAILABLE BUSINESS STRUCTURES
A
Sole trader
Partnership
Company
3
Q
IMPORTANT CONCEPTS WHEN STARTING A BUSINESS
A
- Corporation/incorporation
- Legal personality/corporate personality
- Limited/unlimited liability
4
Q
INCORPORATION
A
- A corporation (company or LLP) is brought into existence by a legal process
o E.g. through rules created by an Act of Parliament like the Companies Act (2006) - Once the incorporation process is completed the law says that “an artificial person” has been created that is separate from its members
5
Q
LEGAL PERSONALITY
A
- All humans are bestowed a legal personality from birth which makes up our rights and duties
- Some business organisations have a legal personality too (called corporate personality or separate legal personality)
- Companies and Limited Liability Partnerships have a separate legal personality
6
Q
CORPORATE PERSONALITY
A
- Corporate personality refers to the fact that, as far as the law is concerned, a company really exists (separately from its members)
- This means that a company can sue (Tesco Supermarkets v Nattrass 1972) and be sued in its own name (e.g. Shah v HSBC 2012, be convicted of the crime (e.g. Network Rail 2011 for Health and Safety offence), own its own property and be responsible for its own debts
7
Q
LIMITED/UNLIMITED LIABILITY
A
- Liability refers to legal responsibility
- A corporation’s liabilities are its own (it is a separate legal person)
- The members of a corporation are not fully liable for the companies’ debts. The corporation itself is liable for its own debts
- Some business structures offer Limited liability to its members (Companies/LLP’s). only responsible for the sum invested
- Other business structures make the individual members/owners of the business fully liable (responsible for debts). Known as Unlimited liability. (as is the case for sole traders and some partnerships)
8
Q
WHAT IS A SOLE TRADER
A
- Most common form of ownership in the UK
- A sole trader is NOT a separate legal person
- To start up as a sole trader it does NOT require incorporation
- Unlimited liability – YOU are responsible for the debts of the business
- Simplest way to get started in business
- All you need to tell the HMRC (online or via telephone) that you intent to be self employed
9
Q
DETAILS REQUIRED TO START A SOLE TRADING COMPANY
A
o Name
o Date of birth
o Address
o Telephone number
o NI number
o Start date
o Name and type of business
o Whether you are a sole trader or working with a partner
- The process is quick and easy if you have the information to hand and you can then start trading
- You must register with the HMRC within 3 months of starting up or face a £100 fine. The 3 month limit starts from the last day of your first
10
Q
NAMING A SOLE TRADING BUSINESS
A
11
Q
TAX RETURNS FOR SOLE TRADERS
A
- As a sole trader business, you pay income tax on any business profits
- You must fill in a self-assessment tax return each year, detailing your income and expenses
- NI contributors will also be payable
- It is necessary to keep detailed financial records for your business, as well as proof of any expenses
- Both will be invaluable when it is time to fill in your tax returns each year and for compiling accounting information which banks will require if lending to you
12
Q
DISSOLVING A SOLE TRADER BUSINESS
A
- You can cease to operate once you have satisfied all of your current and future obligations and liabilities
- Sole traders and their business are considered one and the same from a legal perspective and therefore the sole trader will not be protected against personal liabilities if the business suffers losses and has outstanding creditors
o i.e. unlimited liability - Advice HMRC to ensure all tax liabilities paid up and future tax coding is correct
13
Q
SOLE TRADER - ASSOCIATE OSTEOPATHS
A
- Most newly qualified osteopaths work as associates in existing practices
- They are not normally employed by the principal osteopath
- They register as being self employed/sole trader
14
Q
SOLE TRADER - SUMMARY
A
- No legal formalities – easy to start, end and administer (as long as you keep the accurate records as you trade)
- Need own funds to start and run the business
- Sole responsibility for the business – all decisions are your responsibility
- Privacy
- Owns and controls the business
- All profits (or losses) are down to you
- Taxed personally as income tax on profits – need to file income tax returns
- NOT incorporated
- NOT a separate legal entity
- Liability is UNLIMITED
15
Q
3 TYPES OF PARTNERSHIPS
A
o ‘ordinary’ / general partnerships
o Limited partnerships (rarer than the other 2)
o Limited liability partnerships (LLP’s)
