| Legal Structures |
The legal structure a business chooses is fundamental to the way it operates. This legal framework determines who shares in the profits and losses, how tax is paid, where legal liabilities rests.
 Sole Trader - makes you as an individual personally responsible for all liabilities of the business he/she runs. An individual who runs an unincorporated business on his or her own. Sometimes otherwise known as a "sole proprietor" or (in the case of professional services) a"sole practitioner". The sole trader structure is the most straight-forward option. The individual is taxed under the Inland Revenue's Self-Assessment system, with income tax calculated after deduction for legitimate business expenses and personal allowances. A sole trader is personally liable for the debts of the business, but also owns all the profits. Partnerships - Groups of individuals who are also personally responsible for all liabilities of the partnership which is becoming increasingly unpopular however the benefit of creating a partnership is that of experiencing the freedom or choice of having accounts audited and sending company information to Companies House which can also cause difficulties when going through tax. A partnership is an association of two or more people formed for the purpose of carrying on a business. Partnerships are governed by the Partnership Act (1890). Unlike an incorporated company (see below), a partnership does not have a "legal personality" of its own. Therefore the Partners are liable for any debts of the business. Partner liability can take several forms. General Partners (the usual situation) are fully liable for business debts. Limited Partners are limited to the amount of investment they have made in the Partnership. Nominal Partners also sometimes exist. These are people who allow their names top be used for the benefit of the partnership, usually for remuneration, but they do not get a share of the partnership profits. The operation of a partnership is usually governed by a "Partnership Agreement". The specific terms of this agreement are determined by the partners themselves, covering issues such as: - Profit-sharing - normally, partners share equally in the profits; - Entitlement to receive salaries and other benefits in kind (e.g. cars, health insurance) - Interest on capital (the amount invested in the partnership) - Arrangements for the introduction of new partners - Arrangements for retiring partners - What happens when the partnership is dissolved Shareholders liability limited - To share subscription between shareholders. Private limited - (Small) Limited by guarantee - Normally educational establishments or trusts Public Limited - (Large) Public shareholders own the company such as the John Lewis group. The company must have more than 50 shareholders. Incorporated Company Incorporating business activities into a company confers life on the business as a "separate legal person". Profits and losses are the company's and it has its own debts and obligations. The company continues despite the resignation, death or bankruptcy of management or shareholders. A company also offers the best vehicle for expansion and the provision of outside investors. |
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