Part 1: Choosing a business form Flashcards
5 Types of business organisations listed in the SQE
- Sole traders
- Ordinary Partnerships
- Limited liability partnerships
- Private limited companies
- Public limited companies
5 Types of business organisations listed in the SQE
Sole traders
The most common form operating in the UK today.
Sole-traders are individual people who are self-employed. They are human beings rather than corporate forms.
Liability for Sole Traders
Unlimited Liability
If the business fails, sole traders are liable for any outstanding debts.
5 Types of business organisations listed in the SQE
Ordinary Partnership
“The relation which subsists between persons carrying on a business in common with a view of profit.”
S.1(1) Partnership Act 1890
Is there a requirement for ordinary partnerships to be registered at Companies House?
There is no requirement for ordinary partnerships to be registered at Companies House and, consequently, the running of a partnership will usually be much less administratively burdonsome than a private limited company or a limited liability partnership.
Major drawback of ordinary partnerships
They do not have a separate legal personality and ordinary partnerships do not have the protection of limited liability.
Partners in an ordinary partnership are both jointly and severally liable for the debts of the business.
This means that one partner could find him or herself liable for all the debts of the business.
5 Types of business organisations listed in the SQE
Limited liability partnerships
They share some of the same attributes as both ordinary partnerships and limited companies.
They were introduced into UK law by the Limited Liability Partnerships Act 2000.
Limited liability partnerships must be registered at companies house.
Once registered, the LLP acquires a separate legal personality, and the partners are protected by limited liability.
Downsides of LLPs
More accounting and administrative requirements than ordinary partnerships.
How can LLPs raise capital?
They can grant floating charges.
LLP
Designated Members
At least two of the members of an LLP must be designated members.
They have the responsibility to file certain documents and do administrative tasks.
LLP Partnership agreements
LLPs have the freedom to draft their own partnership agreements.
Unlike the articles of association in a company, these agreements are not public documents.
Why are LLPs popular?
They can be formed with two companies as members.
Unlike with private limited companies, there is no requirement that one of the directors is a natural person.
5 Types of business organisations listed in the SQE
Private Limited Companies
Private limited companies are registered at Companies House.
They can be set up by one person (unlike partnerships, which require at least two.)
Once registered, they have a separate legal personality.
How can companies attract finance?
- issuing shares (equity finance)
- borrowing money (debt finance)
