Legal forms of business Flashcards
What is the primary purpose of businesses?
To make a profit
Some profits are given to owners, while others are reinvested.
What are some factors to consider when structuring a business?
- Costs
- Risk
- Structure
- Formalities
- Privacy
- Finance
What are the purposes of raising capital for a business?
- To purchase premises
- To employ staff
- To obtain advice
- To expand and grow
What are the ways to raise capital for a business?
- Owners’ contributions of capital
- Outside investors
- Borrowing
- Retained profits
What are the characteristics of a Sole Trader?
- No set up costs and no formal structure
- Unlimited personal liability
- No separate legal entity
- No filing requirements
- Full privacy
- Profits taxed as individual income
What are the characeristics of a Partnership?
- No set up costs, no formalities
- Not a separate legal entity
- Unlimited personal liability
- No filing requirements
- Full privacy
What are the key governance aspects of a Partnership under the Partnership Act?
- Equal share of profits and losses
- No salary entitlement for partners
- Decisions by majority
- Partners cannot be expelled by majority vote
When is a partnership formed?
When there are two or more people working together to form a profit (no need for intention)
What is the tax treatment of Partnerships?
Tax transparent - partners are taxed on their individual shares of profits and chargeable gains as either Income Tax or Capital Gains Tax.
What are the two types of partners in a Limited Partnership?
- Limited partners (limited liability, no management involvement)
- General partners (unlimited personal liability, manage the business)
There must be one limited and one general partner
What governs Limited Partnerships?
Limited Partnership Act (1907)
Do Limited Partnerships need to be registered at Companies House?
Must be registered at Companies House
What is a common use of Limited Partnerships?
Popular joint venture business structure (often used as investment vehicles) but not typically for business operations
What new sub-category was created within Limited Partnerships?
Private fund limited partnerships
This sub-category is tailored for specific investment purposes.
What is a Limited Liability Partnership (LLP)?
A LLP is a separate legal personality where all partners have limited liability.
How are LLPs treated for tax purposes?
LLPs are treated as partnerships, and members are taxed as partners on their shares of income and gains.
What must LLPs file annually?
LLPs are required to file annual accounts.
What regulates LLPs if no agreement is drawn up?
LLPs are regulated by the Limited Liability Partnership Regulations 2001.
What are the provisions of the LLP Regulations 2001 which apply if no alternative agreement is drawn up?
- Members share equally in capital and profits
- LLP must indemnify its members for payments made and personal liabilities incurred by them in the ordinary and proper conduct of the business of the LLP
- Every member may take part in management but no member is entitled to renumeration for managing the LLP
- No person can become a member without the consent of all existing members
- Ordinary decision making by majority of members
- Changes to nature of business requires consent by all
- No implied power of expulsion of a member unless in Agreement
How are companies defined legally?
Companies are separate legal entities governed by the Companies Act 2006.
What tax do companies pay?
Companies pay corporation tax on their Total Taxable Profits.
What is double taxation of profits in companies?
Double taxation occurs through corporation tax and income tax when profits are issued as dividends.
Who are shareholders?
Shareholders are owners who invest money in return for shares and the possibility of dividends.
Who are subscribers in a company?
Subscribers are the first shareholders who invest initially.
