Module 16 - Business Structures Flashcards
Is there a legal distinction between the business and the owner of the business? (Sole trader)
No
Is there a formal registration procedure required to operate a sole trader?
No
Although HMRC may need to be informed for tax purposes
Does a sole trader have to keep accounts?
Do these need to be made public?
Yes
No
Does a sole trader have unlimited liability for business debts?
Yes
Is there a limit to the liability of a sole trader?
What does this mean?
No
All of their personal assets (eg house) are at risk if the business fails
Advantages of sole trader
Limited admin - quick and easy to start
Keep all profits
No publishing accounts - reduce costs / help keep certain info a secret from competition
Tax advantages when loss making
Relatively straight forward to change business structure or end trading
Disadvantages of sole trader
Personally liable for business debts
The options and capacity for raising finance are limited
When employing people - sole trader will only be able to rely on their own expertise and capital when starting the business and taking time off from the business may be hard
Why may several people combine to form a partnership
Combining expertise
Combining capital
Sharing risks
What are the three types of partnership?
General partnership
Limited partnership
Limited Liability partnership (LLP)
In a partnership is there more than one individual owning and running the business?
Yes
What is the minimum number of people in a partnership?
What is the maximum?
Two
No statutory maximum number of partners
If operating a partnership is it advisable that a formal partnership agreement is drawn up?
Yes
The legal document (formal partnership agreement) will include what?
Details of how partners will share profits and losses
Whether any salaries are to be paid to partners
Any interest that is to be paid on capital they contribute to the partnership
Occasionally a partnership agreement document may not exist and unless it can be considered that the agreement has been established by practice, these types of situations will be governed by what?
What would this mean?
The Partnership Act 1890
Profits and losses would be shared equally
Can any natural person (human being) aged 16 (for England / Scotland?) (18 in the rest of the UK) enter into a partnership agreement?
Yes
Can corporate bodies, including registered companies also enter into partnership agreements?
Yes
Persons who have entered into a partnership are referred to collectively as?
The name under which the business is carried is known as?
A firm
The firm name
In Scotland, a firm is?
A legal person distinct from the partners of whom it is composed
Partnerships
Does the separate personality of the firm in Scotland give rise to limited liability which may be enjoyed by members of a registered company?
No
Do partnerships in parts of the UK other than Scotland have no legal status separate from that of their members?
No
In both Scotland and the rest of the UK, does each partner face unlimited, personal liability for the entire debts of the business leaving them to recover any contribution from the partnership assets or the other partners, who in the absence of an agreement to the contrary are liable to the other partners for an equal share?
Yes
Advantages of general partnerships
Pooling resources and expertise can make running a business easier than a sole trader
Employees can be incentivised with the prospect of becoming a partner
There is limited admin when starting a partnership
Partnership accounts do not need to be published
Disadvantages of general partnerships
Partners have unlimited liability for the partnerships debts
Decision-making could become difficult or impossible if partners disagree
Partners will become liable for debts even if they were caused by actions of another partner
How does the partnership structure work in a limited company?
At least one partner, known as the ‘general partner’ must have unlimited liability for the debts of the firm
Other partners, known as limited partners, have limited liability provided certain conditions are met