Types Of Organisations Flashcards
Types of organisations
Many types
From 1 person doing most of the work to gargantuan corporations with tens - thousands of workers spread across multiple natural or international organsiations.
This affects the structure of the organisations.
Common organisation types in the private sector
Sole traders
Partnerships
Limited companies
What is a sole trader?
Common form of a business organisation e.g. small retailers, trades people (plumbers), market traders, tutors, artists etc
Many work on their own but can employ people.
No distinction between sole trader and their business.
Easy to setup and owner has complete control.
Owner is wholly and personally responsible for the business and its liabilities.
As a ST it’s possible to lose everything if business does not succeed.
What is a partnership?
A legal arrangement in which 2 or more people set up a business together and share the profits and liabilities.
What are the 3 main types of business partnerships?
- Business partnerships
- Limited partnerships
- Limited Liability partnerships (LLP)
What is a business partnership?
Simplest type of partnership
Extension of ST business model
Must be registered with HMRC
Each partner takes a share of the profit and pays tax on their share through same self assessment system as ST’s
One partner become ‘nominated’ partner who is responsible for managing tax returns and keeping business records.
Each partner shares personal responsibility for paying off debts.
Like ST the liabilities are unlimited therefore personal assets can be used to pay off debts if required.
Many small retailers, tradespeople, internet entrepreneurs are business partnerships.
Sometimes limited companies setup business partnerships with individuals or other companies.
2) What is a limited partnership?
Business info inc address must be registered with Companies house and HMRC.
Must have 1 limited partner and 1 general partner.
Limited partner contributes to costs of the business but liability for paying debts is limited to the amount they contribute.
A limited partner cannot manage or make any decisions about the business.
A general partner cannot manage or control and manage the business but also has unlimited liability for paying debts like a partner in an ordinary business partnership.
In UK. Limited partnerships are often used by companies and individuals who want to invest in a business but are becoming rarer as a business arrangement.
3) What is a limited liability partnership (LLP)?
Option for UK businesses since 2001
Shares some features with business partnerships and some with limited companies.
The business owners in an LLP are called members.
Every member can take a share of the profits and pay tax on their share through the self assessments system.
Lp’s and LLP’s must be registered with CH and must send company accounts to CH.
Formal agreement between members is required:
-how profits are shared among members.
- who needs to agree on decisions.
- responsibilities.
- how members can join/leave.
Designated members have additional responsibilities such as keeping accounting records and submitting those records to CH.
LLP setting up and running is more formal than other types of partnerships, but like a limited company the LLP is legally separate from its members. This means the liability of each member is limited to the amount that they have contributed.
Many professional businesses such as architects, accountants, management consultancies and private sector medical firms are LLP’s.
The model is used by other types and g businesses as well.
Business must intend to make a profit.
Charities and not for profit businesses cannot be LLP’s.
