Business mediums

Question 1

Sole trader - Separate Legal personality/Ownership of assets

Answer 1

Unincorporated, so there is no separate legal personality, the sole trader owns the assets personally.

Question 2

Sole trader - Risk

Answer 2

Solely the trader’s risk. Employees take no liability for debts.

Question 3

Sole trader - Sharing profits

Answer 3

Solely the trader’s profits. Employees earn a wage not a share of profits

Question 4

Sole trader - Decision-making

Answer 4

Solely the trader’s decisions

Question 5

Sole trader - Administrative burden

Answer 5

Do not have to publish accounts or file documentation with Companies house therefore there’s secrecy.

Question 6

Sole trader - Flexibility of structure

Answer 6

There is not set structure although a management structure may be set up by the trader

Question 7

Partnership - Separate legal personality/Ownership of assets

Answer 7

Unincorporated so no separate legal personality. Partners own the assets not the partnership. Joint liability for partners which is unlimited

Question 8

Partnership - risk

Answer 8

Joint and several liability meaning all and any partner can be sued for the totality of liabilities

Question 9

Partnership - Sharing profits

Answer 9

Shared equally unless agreed otherwise. Usual to agree that it is linked to size of investment. Therefore advisable to have a partnership agreement

Question 10

Partnership - decision making

Answer 10

Equal votes in decision making unless agreed otherwise

Question 11

Partnership - Administrative burden

Answer 11

Very little as for sole trader

Question 12

Partnership - Flexibility of structure

Answer 12

The partnership act imposes a structure only if there is no agreement to the contrary. Advisable to have a partnership agreement which can create any structure the partners want

Question 13

Limited Liability Partnership - Separate legal personality/Ownership of assets

Answer 13

Yes LLP owns assets. LLP is a separate legal entity

Question 14

Limited liability partnership - Risk

Answer 14

Limited liability of members.

Question 15

Limited liability partnership - Sharing profits

Answer 15

As for partnership therefore advisable to have a members agreement

Question 16

Limited liability partnership - Decision making

Answer 16

As for partnership

Question 17

Limited liability partnership - Administrative burden

Answer 17

Greater than for partnership as there is registration and on-going filing requirements

Question 18

Limited liability partnership - Flexibility of structure

Answer 18

As per partnership

Question 19

Limited liability partnership - Transparency/Administrative burden

Answer 19

Accounts and details of members need to be filed and go on a public register at companies house - no secrecy

Question 20

Company - Separate legal personality/Ownership of assets

Answer 20

Yes, company owns asserts in its own rights

Question 21

Company - risk

Answer 21

Limited liability of shareholders, directors protected by concept of separate legal personality.

Question 22

Company - sharing of profits

Answer 22

Shared amongst the shareholders in proportion to the number of shares they own.

Question 23

Company - decision making

Answer 23

Separation of power. Day to day decisions are taken by directors who have 1 vote each. Major decisions usually taken by shareholders where voting is proportionate to number of shares

Question 24

Company - administrative burden

Answer 24

Highest burden. Highly regulated leading to registration and on-going filing requirements

Question 25

Company - flexibility of structure

Answer 25

Reasonably rigid. Regulated by statute and articles of association

Question 26

Company - Transparency/administrative burden

Answer 26

High level of transparency due to filing requirements.

Question 27

Limited liability - definition

Answer 27

Shareholder's are only liable up to the amount of their investment

Question 28

Unlimited liability - Definition

Answer 28

Full personal liability for debts of the business

Question 29

Separate legal personality - Definition

Answer 29

A company is considered a legal person separate from its owners and directors. It can own property and assets, sue and be sued in its own right and enter into contracts. Creditors cannot sue members or directors to pay off debts.

Question 30

What influences a client's choice of business medium

Answer 30

Risk, cost and transparency

Question 31

Limited partnership

Answer 31

Provides partners with limited liability but a limited partner cannot participate in the management of the limited partnership. Whereas with limited liability you get limited liability and management control

Question 32

Do you have to submit the partnership agreement on incorporation of an LLP

Answer 32

No