Legal Structure of a Business Orgnanisation
Business organisations are the different legal forms a business can
adopt. The key distinction is that some businesses provide limited
liability for any debts the business incurs. Others have unlimited
liability - which obviously doesn't
Up Arrow Callout: Sole-trader
Up Arrow Callout: Partnership
Up Arrow Callout: Private Limited Company (ltd)
Up Arrow Callout: Public Limited Company (plc)
What is a Sole-trader? (Builder/local shops/hairdresser)
Sole-traders are individuals who own and operate their own businesses.
Although there may well be other employees (usually no more than 5)
the final decisions are made by the 'sole-trader'. A sole-trader is
the only one that benefits financially from the success, but must also
face the burden of any failures.
Therefore, in the eyes of the law the business and the individuals are
the same. This means that the sole-trader has unlimited liability.
What are the advantages and disadvantages of being a Sole-trader?
(1) Keeps all the profits (1) Limited Capital (finance)
(2) Set your own agenda (2) Long & hard hours
(3) Secretive business (except Taxman!) (3) Unlimited liability
What does Unlimited Liability mean?
Unlimited liability means that owners are liable for any debts
incurred by the business, even if it requires them to sell all there
assets and possessions and become personally bankrupt.
What is a Partnership? (Doctor's Practice)
To overcome many of the problems of a sole trader, a partnership may
be formed. A partnership is an association of individuals and
generally there will be between 2 and 20 partners.
Each partner is responsible for the debts of the partnership and
therefore you would need to choose your partners carefully and draw up
an agreement on the responsibilities and rights of each partner (known
as a Deed of Partnership or The Articles of Partnership).
The most common examples of a partnership are doctor's surgeries,
veterinarians, accountants, solicitors and dentists.
As stated earlier, most partners in a partnership face unlimited
liability for their debts. The only exception is in a Limited
Partnership. This is where a partnership may wish to raise additional
finance, but does not wish to take on any new active partners.
To overcome this problem, the partnership may take on as many Sleeping
(or Silent) Partners as they wish - these people will provide finance
for the business to use, but will not have any input into how the
business is run. In other words, they have purely put the money into
the business as an investment. These Sleeping Partners face limited
liability for the debts of the partnership. A partnership, just like a
sole trader, is an...