Module 16 Business Structure Flashcards
Key characteristic of a sole trader?
No legal distinction between the business and the owner
Advatages of a sole trader
- Limited admin so quick and easy to start
- Keeps all profits
- Not required to publish accounts
- Tax advantages when loss making
- Stright forward to change strucure or end business
Disadvatages of a sole trader
- Personally liable for debts
- Options for rasing finance difficult
- Time off may be hard as they are resposible
General partnership
- Minumum of 2 persons
- No maximum
- Formal partnership agreement advisable, to split profits
- No agreement will be governerd by the Partnership Act 1890 (Equal Sharing)
Who can enter into a partnership
- Natrual person 16 scotland
- Natural person 18 rest of UK
- Corporate bodies
Feature of partnership in scotland only
- A firm is a legal person distinct from the partners
- Does not give rise to limited liability however
Feature of partnerships in Scotland and UK
- Each partner unlimited personal liability
Advantages of a Partnership
- Pooling resurces and expertise
- Employess can be incentivied to be partner
- Limited admin
- Accounts do not need to be published
Disadvantages of a partnership
- Partners have unlimited liability for debts
- Descions could be difficult if disagreements
- Liable for the debts caused by others
Key characteristics of a Limited partnership
- At least one general partner (unlimited liability for debts)
- Other limited partners (No power to bind the firm)
Advantages of a limited partnership
- Can provide funding but not expertise
- Widley used for venture captial and private equity investment trusts
Disadvantages of limited partnership
- General partner has unlimited partnership
- Risk limited partner could be treated as a general partner
Limited liability partnerships
- Introduced by the LLP act 2000
- Benifit from limited liabiltiy but operate similar to a traditional partnership
- LLP is a seperate legal person
Advantages of an LLP
- Partners have limited liabiltiy and not liable to debts
- Flexibility in management and how profits are distributed
Disadvantages of an LLP
- Accounts need to be publihsed
- Parners are taxted as if all profits have been distributed
Companies registered under CA 2006
- Company is a seperate legal person
- The company is liable for the debt
- Must be public or private
- Can still be a plc without being listed
- Not all companies are registerd under CA 2006 eg BBC
Difference between ltd and plc
- Plc may offer its shares to the public
- Plc is subject to more rigorous regulations
Advanatges of a company
- Shareholders have limited liabiliy
- Seperate legal entity
- Can raise finance by issuing shares
- Dividend and low salaries can be used to reduce tax
Disadvantages of a company
- Strict regulations
- Accounts need to be published
- Profits are not automatically to sharholders
- More shares issued the less power the founder will have
Application for registration
- Proposed name
- Registred office location
- Limited or not and if so limited by shares or guarantee
- Private or public
- Intended principal business activities
Memorandum of association
- Provides evidence the subscirbers intend to from a company
Statment of capital and inital shareholdings
- Snapchat of the companys share capital at point of registration
Statment of Inital significant control
- Will there be persons who holds more than 25% of shares
Statment of compliance
A statment that CA 2006 has been compllied with
Articles of Association
- Form the consituation of a company
- Pay a £12 application fee
Company’s key rules will include
- appointment or dismissal of directors
- powers, responsibilities and liabilities of directors
- admin requirments related to calling conducting or voting at general meetings
- Memebers rights
- dividend policy
Register of members
- Name and adress of members
- Shares each member holds
- Date becoming/ceasing to be a member
Register of Directors
- Names of present and former directors
- A service address
- Directors country or residence and nationality
- Date of birth
Register of charges
- Copies of fixed and floating charges including any amending intruments
Register of people with significant control
- Persons who hold more than 25% of shares
- Or right to appoint or remove directors
The confirmation statment
- every 12 months
- infrom the registrar about changes
Who is required to hold an AGM
- Public companies
- Within 6 months of the financial year end
Rules for AGM
- Minimum 21 day notice plc
- Minimum 14 day notice ltd (unless articles say otherwise)
- Sent to all members, hard copy or online
- Time, date, lication, subject and general nature of business
- 5% voting rights have right to propose resolutions
General meetings
- Directors will call meetings
- Minimum 14 days notice
- 90% ltd or 95% plc can vote to shorten thiS
- Shareholders 5% can request meeting
- Directors must call meeting within 21 day a sharhoder requests
- If directors fail to call meeting, then shareholders can themselves
Ordianry resolution
- 50%+1 to pass
- 14 days notice
Speical resolution
- Requires 75% to pass
- Notice depends on type of meeting
Who can pass written resolutions
- Private companies only
- Except to remove director or auditor before end or term
Twp types of directors
- De jure - appointed
- De facto - never officaly appotined
Dorchester Finance Co Ltd v Stebbings 1989
- 1 ED and 2 NEDs
- All were negligent even though non exeuctive
- Duty of care is the same with all directors
IDC v Cooley 1972
- He obtained a contract in his own name
- IDC sued him
- Held accountable for profits
- Avoid conflict of intrest
Foss v Hardbottle 1843
- The general rule
- It is for the compant itself to bring proceedings where wrong has been done
- 4 exeptions:Illegal act, special procedure, membership rights, fraud on the minority
Kleanthous v Paphitis 2011
- Kleanthous was not gratned to bring a derivative claim
What requires requires an ordinary resolution of which special notice has been given?
- Removal of a director before the expiry of their period in office
- Removal of an auditor before the expiry of their period in office
