The most popular style of small business enterprise, it’s simple to set up and does not require any formalities. Sole trader often is a one person who manages and owns the company. They take all the profits, but must also include all losses. Indeed, if the only operator becomes insolvent personal assets may be used to satisfy creditors, such as a house, car, etc. They are personally responsible for all indebtedness of the company and have unlimited liability.
C. Incorporated Bodies
Private Limited Company (LTD)
Public limited company (PLC)
2 Clarify for Gurpreet and Samuel, by distinguishing the difference between these organisations by identifying and explaining the advantages and disadvantages of the legal requirements for setting each of these up.
| Advantages| Disadvantages|
Sole trader| * Small – cheap to run in comparison with other forms of business enterprise * Can use their own name as the name of the business – Business Names Act 1985 * Fairly straightforward to establish * All profits go to trader * Privacy| * Because all income goes to the owner, money tends to be squandered * Little cash used to regenerate business * Owner personally liable for all debts!| Partnership| * No formulation * Written contracts are advisable to ensure all partners know exactly what their responsibilities are * Scotland – separate limited personality – making it an artificial person (a body that the law recognises as a person in its own right; it can take legal actions and defend them) * Shared responsibilities * Privacy * Incentive to do well * Shared profits| * Joint and several liability * Partnerships require agreement between partners, on everything. This can lead to deadlock, eventually killing the partnership if they cannot be resolved| Private Limited Companies LTD | * More capital raising possibilities * Greater continuity * Limited liability | * Shares cannot be offered to public * Accounts not private * Possible limitations in raising capital | Public Limited Companies PLC| * Shares transfer easy * Easy of raising capital * Maximum continuity * Limited liability * Little difficulty in borrowing money | * Formation involves considerable documentation * Share transfer can lead to take over * Lack of privacy |
3 If Gurpreet and Samuel decide to set up in business as a partnership, what authority and liability would each of them have?
Business partnership of two or more people but no more than 20 partners (possible exceptions). Each partner will contribute something to the business, whether it is a skill or investment capital. Partners are agents of partnership, so a person may be associated with partnership to a contract. It says that the partnership is a legal person distinct from the partners. This means that the partnership may be sued or may sue. Partners are jointly and severally liable for all the creditors. As the only entrepreneurs, the partners in a partnership have unlimited liability. It is recommended that these terms and conditions are written in the partnership agreement, although this is not required by law. If the company does not prepare a partnership agreement or does not contain some term, the partners will be bound by the rules dictated in Section 24 of the Partnership Act 1890. For example, unless otherwise indicated, all gains are shared equally. Profits were agreed by both to share on that basis how much capital they put in the opening the business, they need to make this word expresses the Partnership Agreement. However, for Gurpreet and Samuel a good solution could be to assume limited liability partnership. Limited liability partnership (LLP) shares many features of a normal partnership, but also offers reduced personal responsibility for the debts of the...