2. Business Structures Flashcards
(17 cards)
How are sole proprietorships formed?
Individual must notify HMRC of their self employed status and choose a name for their proprietorship. If the name is not their given name, it must conform to the other requirements of a ‘business name’
What is the difference between a sole practitioner and a sole trader?
Sole practitioners are registered professionals e.g. accountants
Sole traders are non-professionals e.g. fencers, nail technicians
What operational tax rules must sole proprietorships follow?
- submit own tax return from adequate financial records
- Register for VAT if revenue is above the threshold
- Register for PAYE if they have employees
How is a business Partnership defined?
the relation which subsists between persons carrying on a business in common with a view of profit’ (PA 1890, s. 1(1)).
Which legislation governs Ordinary Partnership Structures?
The Partnerships Act 1890
What is the liability of Partners in an ordinary partnership?
joint and several unlimited personal liability
claimants may sue the partners collectively or one at a time until their loss is recovered
Does a Partnership Agreement need to be in writing to be valid?
No, partnership agreements can be oral or implied by actions, but a written contract is recommended to avoid disputes
In what circumstances are all partners liable to uphold third party contracts entered into by one partner?
The agreement must be upheld unless:
1. The partner had no authority to enter into the agreement
AND
2. the third party they dealt with (a) knew that they had no authority; or (b) did not know or believe they were a partner
In what circumstances are all partners liable for wrongful acts or negligence of another partner?
- the partner was acting within their powers/authority
- the partner carried out the acts under the usual course of business
How does a Limited Partnership structure differ from an ordinary/general partnership?
one or more general partners and one or more limited partners:
1. The general partners will be liable for all the debts and obligations of the limited partnership.
2. the limited partners will contribute a stated amount when they become partners, but will not be liable for the firm’s debts and liabilities beyond that amount. Limited partners are not permitted to take part in the management of the firm, nor do they have the power to bind the firm (suitable for sleeping/silent partners)
How are Limted Partnerships created?
Registering specified documentation with Companies House.
Limited partnerships must end their name with the words ‘Limited Partnership’ or the abbreviation ‘LP’.
LPs are not incorporated structures and do not have a corporate personality.
How have the Government tried to limit money laundering activities in Limited Partnerships?
The Economic Crime and Corporate Transparency Act 2023 added a number of provisions that requires LPs to provide Companies House with specified information (e.g. details regarding the partners, a confirmation statement)
A limited partnership must also have its registered office in the UK (LPA 1907, s. 8E).
What is the liability of partners in a limited liability partnership?
Like a company, an LLP has a separate personality. The LLP is liable for the debts and liabilities of the LLP, and the LLP’s members are protected.
Limited Liability Partnerships Regulations 2001 provide that a modified version of the Insolvency Act 1986 will apply to LLPs. When an LLP is wound up, every member is liable to contribute an agreed ammount. This amount is usually found in the LLP’s partnership agreement.
Why are LLPs favourable for larger partnerships?
As the liability of the partners in an ordinary partnership is joint, partnerships with a large number of partners are open to high risk based on the negligence of other partners, over whom they may have limited control or central oversight.
To avoid this exposure to liability, a number of large accountancy firms lobbied the government to create a new form of partnership that would shield the partners from liability.
Limited liability partnerships are regulated as stringently as companies, meaning that only larger professional firms have tended to adopt LLP status.
Which form is used for the incorporation of a company?
IN01
What are the 5 company types which can be incorporated?
- a public company limited by shares
- a private company limited by shares
- a private company limited by guarantee
- a private unlimited company with a share capital
- a private unlimited company without a share capital
What is the main difference between public and private companies under CA2006?
Private limited companies are prohibited from offering their securities to the public, whereas public companies are free to offer their securities to the public.
Public companies must not engage in any business unless they have been issued with a trading certificate. This certificate will only be issued if the company has an authorised minimum share capital. Private companies do not require a trading certificate.
