Chapter 3: Business Ownership

• Sole trader


  A business owned by one person and not a limited company. Unlimited legal liability for business debts
• Liability of a sole trader

  Unlimited. The total personal wealth of the sole trader would be available to pay off trading liabilities
• Documentation of a sole trader

  No specific. File normal income tax return for business
• Partnership


  A business owned by more than one person, not a limited company
• Description of a partnership

  Two or more people go into business, owned in equal or unequal amounts. Strictly control who can buy an interest in the partnership
• Sleeping partners


  Most partners are involved in the running of the business. However some provide capital and take no part in day to day operation
• Liability of a partnership

  Unlimited, jointly and severally liable. Individual partners can be sued separately for the entire debts of the business. Level of trust-put personal wealth behind firm obligations
• Severally liable


  Each partner is liable to the full extent of their personal estate for the deficiencies of the partnership
• Partnership documentation

  Partnership agreement-who makes decisions and how profits are shared. No specific documentation needed. Accounts for tax authorities to work out each partner's liability to tax on their share of partnership profits. Partners pay income tax
• Limited company


  A business that has a separate legal identity from the owners of the business
• Description of a limited company

  Distinct legal identity-can own or deal in property, arrange contracts, sue, be fined by the court
• The owners of a company

  Shareholders-vote and appoint directors
• Who runs a company

  Managers carry out director policies on a day to day basis
• Executive directors


  Managers elected as directors.
• Non executive directors


  Not involved on a day to day basis
• What separates a public limited company

  Shares can be purchased and sold without permission from other shareholders. Not actively involved in running the company
• When can dividends be greater than profits

  If there are sufficient retained profits from previous years
• Documentation for limited companies

  Memorandum of Association, Articles of Association
• MoA

  A short document recording the intention of the people concerned to form a company
• AoA

  Set out in detail the internal rules for running the company
• How has the MoA changed

  Doesn't need to set out purpose so no restrictions. Before, needed more detail, name registered office, purpose, objectives, share capital/
• The AoA cover internal arrangements such as

  Voting rights of class of shares. Rules for electing directors, payment of dividends. Winding up provisions
• What happens when the MoA and AoA are submitted to companies house

  Certificate of incorporation is issued
• Which companies must produce audited accounts

  Above a certain size-turnover, assets, employees
• what tax do companies pay

  Corporation tax on profit earned
• Limited liability partnership


  Business vehicle that gives the benefits of limited liability whilst retaining other characteristics of a traditional business partnership
• Description of an LLP

  An firm consisting of two or more members engaged in a profit making venture. No directors, shareholders
• IS the LLP a legal entity

  Yes, makes contract with LLP not member\
• LLP liability

  Limited-each members liability is limited to the amount they put in. however action may be taken against individual negligent and fraudulent individuals.
• Company liability

  Owner liability is limited to the fully paid value of their shares. If shares are partly paid, only liable to pay outstanding installments
• LLP documentation

  No MoA or AoA, governed by partnership agreement. In absence of that, default provision. Registered at company house, incorporation document must be submitted and signed by at least two people. Taxed as a partnership, audited as a company.
• Partnership disclosure


  None, though accounts needed by tax authority to calculate each partners tax liability
• LLP disclosure


  Audited accounts if above a certain size. Tax liability'
• Disclosure: limited company


  Above a certain size be audited\
• Public limited company

  Documentation states it is a public company and has issued share capital of at least $50 000. has the abbrev. PLC
• How must a PLC be registered

  With the registrar of companies at Companies house. Must produce audited reports
• PLC shares

  Must be paid up to at least a quarter of its par value plus the whole of any premium on it
• Private limited companies


  All other limited companies. Name ends with LTD> Not allowed to offer shares to the public
• Listed companies

  A company that wants to have a full Stock exchange listing must be a PLC
• Companies limited by guarantee

  Each member's liability is limited to the amount they have guaranteed. Used to form clubs and associations