5. Law: Sole Traders | Partnerships | Dissolving a Partnership | Tax Payments for Sole Traders & Partnerships | Limited Liability Partnership

Question 1

Sole traders run their business as?

Answer 1

an individual

as self-employed

Question 2

What happens to a sole traders business profits?

Answer 2

they get to keep all profits after tax

Question 3

Who is personally responsible for any losses that a sole traders business makes?

Answer 3

the sole trader

Question 4

Give an example of a small trader business?

Answer 4

a single person who owns and operates their own lorry

Question 5

The moment you do what makes you a sole trader?

Answer 5

offer goods & services

Question 6

Explain “Profit retention” as sole trader advantage

Answer 6

keep all the profits of their business

Question 7

Explain “Private data” as a sole trader advantage

Answer 7

information about sole traders is kept private unlike Ltd Companies

Question 8

Explain “Manoeuvrability” as a sole trader advantage

Answer 8

can make & implement decisions quickly because no need to discuss with other decision makers

Question 9

Explain “Control” as a sole trade advantage

Answer 9

can run their business anyway they want to without the interference of others

Question 10

Explain “Local” as a sole trader advantage

Answer 10

can offer a more personal service with local community

Question 11

Discuss 5 advantages of being a sole trader

Answer 11

profit retention

private data

manoeuvrability

control

local

Question 12

Explain “Liability” as a sole trader disadvantage

Answer 12

• unlimited liability
• sole traders are not separate entity from the law
• if business goes into debt < all assets inside & outside business is liable

Question 13

Explain “Capital” as a sole trader disadvantage

Answer 13

more difficult to access start up capital to speed up growth

Question 14

Explain “Economies of scale” as a sole trader disadvantage

Answer 14

harder to buy at scale vs larger businesses < more capital

owner has to charge higher prices

goods & services

Question 15

Explain “Decisions” as a sole trader disadvantage

Answer 15

all the decisions have to be made by the sole trader

success or failure of business relies on one person without support from others

Question 16

Discuss 4 disadvantages of being a sole trader

Answer 16

liability

capital

economies of scale

decisions

Question 17

How many people do you need to form a partnership?

Answer 17

two or more

Question 18

Explain “merge skillsets” as an advantage in a partnership?

Answer 18

by allocating work according to their skills < like…

Question 19

Explain “shared responsibility” as an advantage in a partnership?

Answer 19

support each other

problem solving

decision making

Question 20

Explain “Capital” as an advantage in a partnership?

Answer 20

more partners

more start up capital < faster rate of growth & therefore profitability

economies of scale < reduced cost of goods & services

Question 21

Explain “Form manage & run” as an advantage in a partnership vs companies?

Answer 21

formation laws < less strictly regulated than companies

easier to manage & run < if partners can agree < partners have full say < no shareholders

Question 22

Discuss 4 advantages of a partnership

Answer 22

merge skillsets

shared decisions

capital

control - no shareholders

Question 23

Explain “Conflict” as a disadvantage in a partnership?

Answer 23

conflict can damage the business & the relationships within the business

how things should be done

who should do what

where the business should go

Question 24

Explain “Agreement” as a disadvantage in a partnership

Answer 24

all partners have to agree for decisions to be approved slowing down business

Question 25

Explain “Liability” as a disadvantage in a partnership

Answer 25

unlimited liability

all partners share the liability of the business

Question 26

Explain “Taxation” as a disadvantage in a partnership?

Answer 26

pay tax same as sole traders

the more profitable the partnership < the more personal taxation at a certain level vs limited company

Question 27

Discuss 4 disadvantages of a partnership

Answer 27

liability

taxation

disagreements

agreement

Question 28

What 5 reasons would cause a Partnership to be dissolved?

Answer 28

by mutual agreement of all partners

the business has no further purpose

if there is a death or bankruptcy of a partner

it if becomes unlawful to continue

by a court judgement (often when one of the partners becomes mentally incapable)

Question 29

After a partnership has been dissolved which four need to be notified?

Answer 29

The bank

Tax Office

Suppliers

Customers

Question 30

After a partnership has been dissolved & the relevant people have been notified what else needs to be done?

Answer 30

the partners need to agree on

how to divide the business assets

how the business name may be used in the future

Question 31

When do Sole Traders & Partnerships have to file tax returns?

Answer 31

by the 31st of January from the tax year that ended on 5th April of the previous year

Question 32

What type of tax is paid by Sole Traders & Partnerships & who is the tax payable to?

Answer 32

Income tax is paid on any profits

HM Revenue & Customs

Question 33

As a sole trader or partnership how many years & from what date must you keep all financial records for?

Answer 33

five years

after the 31st January submission deadline of the relevant tax year

Question 34

What is a Limited Liability Partnership (LLP)?

Answer 34

it’s a hybrid by combing the features of a traditional partnership & Ltd company

it’s neither a partnership nor a company

Question 35

What are partners also called in a Limited Liability Partnership & what else do you know about this?

Answer 35

partners are also called members or “corporate members”

members can be “human” or “corporate”

a limited company can count as a legal person

Question 36

What is the specific distinction of the word member in a LLP?

Answer 36

it’s a way to distinguish limited liability unlike partners in a partnership

Question 37

How many members do you need to form an LLP?

Answer 37

two or more

Question 38

Do Limited Liability Partnerships have shareholders?

Answer 38

LLPs don’t have directors, they have partners

LLPs don’t have shares or shareholders, they have members

Question 39

Give examples of who generally form a LLP?

Answer 39

a couple of solicitors or accountants who want to go into partnership

they want to keep their practice small with a small number of employees

they want a “professional partnership” with the benefit of limited liability

Question 40

What does limited liability mean for an LLP?

Answer 40

it’s a separate legal entity & the LLPs member’s liability is limited

financially - members are only responsible for any debt equal to the amount of capital they initially invested

legally - protected from being sued

legally - legally protected for being responsible for negligence or misconduct of any other members

Question 41

How are corporate members taxed in an LLP?

Answer 41

pay income tax based on profits of business

same as sole trader or partnership

Question 42

What is in the members agreement?

Answer 42

allocation of profit

liabilities

members duties

procedure of addition or removal of members

dismissal procedure