Part B: Business Law Flashcards
Sole trader
Business owned and controlled by one person
Aims and objectives- survival, growth, profit
Most common in UK
Unlimited liability - personal funds required
+Ve sole trader
+ Easy to start/end
+ Completely responsible for the business, you
make all of the decisions without having to ask anybody else’s permission.
+ All profits go to you
+ Privacy – As a sole trader you only have to divulge your financial information to the relevant
authorities (i.e. for taxation purposes).
+ Lower taxes/paper work
+ Easy to change into a partnership or company.
-Ve sole trader
- Unlimited liability - responsible for all debts incurred by the business.
- Financial difficulties - banks very wary of lending, especially to a sole trader.
- Public perception - hard to get as much attention as a company.
- It is very demanding of time and imposes a heavy personal commitment on the owner-any
sudden illness or personal difficulty experienced by the owner could have serious
consequences
Ordinary and limited Partnership
The relation which subsists between persons carrying on a business in common with a view of profit - 1890 Partnership act.
2 or more people - share the risks, costs and responsibilities of being in business.
Unlimited liability
Taxed personally
+Ve Ordinary and limited Partnership
+ Relatively easy to set up
+ More than 1owner the ability to raise funds is increased
+ Diversity of skills
+ Becoming a partner is an incentive to future employees
-Ve
- Unlimited liability - responsible for partners actions
- Profits split
- Decisions shared, disagreements may occur
- Partner may suddenly decide to leave or die.
Limited liability partnerships (LLP’s)
Limited Liability Partnerships Act 2000
Will be a separate legal entity, with its own legal personality
+Ve LLP’s
+ More than 1owner the ability to raise funds is increased
+ Diversity of skills
+ Becoming a partner is an incentive to future employees
+ Limited liability
+ Continue after death
-Ve LLP’s
- Profits split
- Decisions shared, disagreements may occur
- Privacy, must file accounts and tax returns to the Registrar.
Companies
Can be private or public
Private limited company can be run with just one member
A business needs to go through an incorporation process before it becomes a limited company.
The director(s) run the business, the shareholders own/fund it and reap the rewards in the form of dividends. The shareholders will have the right to vote on many issues.
Shareholders are only responsible for any company debts up-to the amount that they have invested and no more.
+Ve companies
+ A limited company has a legal existence separate from management and the shareholders.
+ The members’ only liability is for the amount
unpaid on their shares, if things go
wrong, a members’ only loss is the value of the shares not personal assets.
+ Continuity. Once formed, a company has everlasting life.
+ Easier to secure finance. A lending bank may be more willing to lend to a company as it may
be able to secure its loan against specific assets of the business
+ Better Pension schemes.
+ Limited Companies are only taxed on their profits
and as such are not subject to the higher
(personal) tax rates placed on sole traders or partnerships which can reach 45%.
-Ve companies
- Will involve a cost to set up although perhaps not as expensive as some people may believe (around the same as for a LLP).
- Complex Accounts.
- Sometimes disputes will arise between Directors and Shareholders as their ideas of what is best for the company vary. Sale of shares to increase company funds will further dilute the management, as more and more people have a say in how the
company is run.
Limited liability
Business owners only liable for amount they have invested
Unlimited liability
Bus owners liable for all debts, personal assess used to pay off.
