Week 1 (w/c 30th Sep) - Introduction to the Module & Types of Business Entities Flashcards
What is the difference between an unincorporated and an incorporated business?
The difference between an unincorporated and an incorporated business is being a legally separate entity
What is a sole trader?
In a sole trader:
- Business has no distinct legal existence, tied to the trader themselves
- No regulations re: the structure of the business, but still needs to comply to employment law, H&S etc.
- Still can have staff, but trader is responsible for the business (and earns the profits)
- Any profits subject to income tax
- Can use a business name, but correspondence must contain your personal name
- Has UNLIMITED LIABILITY
what does unlimited liability mean?
Unlimited liability is where a trader is responsible for the liabilities created by the business
If a unincorporated business cannot satisfy its creditors, the owners of the business are liable
May result in repossession of assets (business & personal) and bankruptcy
What are the three types of partnership?
Three types of partnership:
General (or ordinary) partnerships
Limited partnership (where the partners have a mix of limited and unlimited liability) – not very common
LLP: Limited Liability Partnership
What are the features of general partnerships?
Similarities to sole trader:
Business has no distinct legal existence, still tied to the owners themselves
No legal filing requirements bar HMRC
Unlimited liability for all partners jointly
Differences to sole trader:
More than one business owner
Each partner takes share of profit (not necessarily equal)
Partnership is essentially a contractual agreement between the partners
When does a partnership commence?
a partnership commences, not when agreement is made, not when trading commences but
It’s when the partners commence their business activity.
What is the partnership agreement (or deed)?
he partnership agreement (or deed) is:
Written agreement setting out the terms of the partnership, such as:
- Name and correspondence address of partners
- Amount of capital provided by each partner
- Interest payable on capital contributions/paid on drawings
- Share of profits (or losses)
- Decision making processes, how to resolve issues
What is limited liability partnership (LLP)?
Limited liability partnership (LLP):
Could be thought of as a halfway point between a general partnership and a limited company.
What are the similairities between an LLP and a general partnership?
Similarities between an LLP and a general partnership:
Members still taxed the same way as a partnership i.e. income tax. No Corporation Tax incurred.
Still has the organisational flexibility of a partnership
Most LLPs will have an agreement that is a private, members-only document.
What are the differences between an LLP and a general partnership?
Differences between an LLP and a general partnership:
An LLP is a separate legal entity away from its partners (members)
The liability of its members is limited (in this case, by the amount of capital introduced into the partnership)
An LLP has to file incorporation at Companies House and file annual accounts
is an LLP an incorperated business?
an LLP is an incorporated business
