Business Environment

Topics: Corporation, Company, Legal entities Pages: 9 (2899 words) Published: February 23, 2013
Student´s Name: Michael Wanderley Mallmann Spanholi
Business Environment

LO1. Understand the organizational purposes of businesses
1.1 Identify the purposes of different types of organisation The UK legislation allows different types of legal structures to do business in its area. In the private sector, the following forms of companies can be seen: Sole trader is a business owned by an individual who is self-employed, but staff can be hired on either a full-time or a part-time basis if necessary. E.g., newsagent´s shop, hairdressers, plumbers, photographers. Normally, the Sole trader uses his personal funds to start the business. As it is small the Sole trader needs to decide things like type of goods to be produced or services to be provided, the area where the business will be based, what capital will be invested, how many staff (if any) will be hired, what will be the target market and so on. The management responsibility relies on a single person. Where the business became profitable, all its profits accrue to the owner, but if the business has a loss, all its losses are the Sole trader responsibility as one of the specifications of this legal structure says that the Sole trade has unlimited personal liability. It happens due to the Sole trader do not have a separate legal existence from their owner.

Even with this disadvantage, sole proprietorship is the most popular form of business organisation numerically in the UK and probably one of the reasons of this is because it is relative ease to an individual to establish this type of business.

To set up a business, a name needs to be chosen, there are some restrictions that can apply and the name of the proprietor must not be used. According to, the Sole trader must register with HM Revenue & Customs (HMRC) as soon as they can after starting the business, but the register to VAT – Value Added Tax is just compulsory if the turnover exceeds a certain figure. (E.g. £ 77,000 in 2013 as can be seen on

Being a business implies in follow a variety of legal requirements such as Contract Law, Consumer Law, Employment Law, but as a Sole trader, there is no obligation to file information about the business in a public place. Partnership is defined in The Partnership Act 1890 as “the relation which subsists between persons carrying on a business in common with a view to profit”. This form of a business does not have its own distinct legal personality, therefore the partners have unlimited personal liability both jointly and severally. According to Law, there are some restrictions about the maximum number of partners in a Partnership, most of it are limited to 20 or less, but it will be regulated by the Companies Act 1985, s 716. It is not compulsory to have a formal written agreement in this type of business, but most Partnerships tend to do so, mainly because it makes much easier and reliable to the partners to have a written document to consult. In any case, if a business does not have its own written agreement the Partnership Act 1890 lays down a minimum code that regulates the relationship between partners and provides a lot more information about a range of cases. While in the Sole trader the management responsibilities lies with one person, in the Partnership these responsibilities can be shared.

Private Limited Companies have its own distinct legal personality. It means that these type of companies can sue other companies or people and they can own assets in their own right. In case of bankruptcy, the personal liability of its shareholders is limited to the amount invested in the company. E.g. A shareholder has 1,000 shares originally valued at £ 2.50 each. At the time the company went bankrupt this Shareholder have subscribed just £ 1,000.00 (400 shares), so this Shareholder loses its £ 1,000.00 and still needs to pay £ 1,500.00 (600 shares). There is companies limited by guarantee instead of...
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