Types Of Business Medium Flashcards
Unincorporated business
Does not have its own legal identity or separate personality. There is no legal distinction between the business and its owners or managers.
Incorporated business
An incorporated business has its own legal identity or separate personality. There is a legal distinction between the business and its owners and managers.
Sole trader
Someone who is self-employed and owns and runs their own unincorporated business.
Unlimited liability
A business owner is personally and directly responsible for all debts and liabilities incurred. Their personal assets will be at risk and they can be made bankrupt if the business is unsuccessful.
Partnership
An unincorporated business that exists when two or more people carry on a business in common with a view of profit.
Company
A company is an incorporated business with separate legal personality and where the owners usually have limited liability.
May be limited by shares or guarantee and can be public or private.
Separate legal personality (Salomon v A Salomon and Co Ltd)
Held: it wasn’t fraud to set up a limited company in order to create a separate legal person to avoid personal responsibility for debts.
The company is a person separate from its members/shareholders and directors. It can own property, enter into contracts, and be a party to legal proceedings (by suing or being sued).
Limited Liability
Liability may be limited by shares or guarantee.
Members have a limit on their liability to contribute towards the company’s debts.
Limited by shares- the liability of members is limited to any amount unpaid on their shares.
Limited my guarantee- the liability of members is limited to any amount they promise to pay in the event that the company is wound up.
Private Limited Company
A company that is not a public company.
May be limited by shares or guarantee.
Shares cannot be offered to the general public.
No minimum capital requirements.
Public Limited Company
Certificate of Incorporation states that it is a public limited company.
May be limited by shares.
General public can be invited to subscribe for shares.
Minimum capital requirements are £50k.
Shares must be at least one quarter paid up.
Subject to more onerous rules.
Company may apply for shares to be officially listed for trading on a recognised investment exchange.
Officially listed companies are subject to additional disclosure rules.
Limited Liability Partnerships
Formed under the limited liability partnerships act 2000.
Formed by sending form LLIN01 to CH.
Combination of partnership and limited companies. They are available for persons carrying on a lawful business with a view to profit and every member is deemed to be an agent of the LLP.
When registered at CH, an LLP has separate legal personality and members have limited liability/are not directly responsible for its debts.
May grant fixed or floating charges over assets.
Subject to ongoing administrative and reporting requirements.
