Chapter 2 - Business Structures

Question 1

What are the main types of business structures in the UK?

Answer 1

Sole proprietorships, partnerships (ordinary, limited, LLPs), companies (private / public) and mutual organisations.

Question 2

What is the key difference between an LLP and an ordinary partnership?

Answer 2

LLPs have separate legal personality and limited liability for members, whereas ordinary partnerships do not.

Question 3

What are the advantages of a sole proprietorship?

Answer 3

Simple to set up
Full control by the owner
Minimal regulation
Privacy

Question 4

What is the liability of partners in an ordinary partnership?

Answer 4

Partners have joint and several liability for the debts and obligations of the partnership.

Question 5

Quick hit
LLP

Answer 5

Limited Liability Partnership - a hybrid between a partnership and a company.

Question 6

Quick hit
Sole trader

Answer 6

An individual running a business on their own account.

Question 7

Quick hit
Mutual Organisation

Answer 7

An entity owner and run for the benefit of its members.

Question 8

List 6 factors that influence the structure of a business

Answer 8

Ownership
Liability
Regulation
Ability to raise money
Taxation
Purpose

Question 9

What are the benefits and potential drawbacks in operating a sole proprietor? (5 marks)

Answer 9

Benefits
- simple to operator & easy to set up
- privacy - not required to disclose business information
- less regulation
- able to take on employees

Drawbacks
- unlimited liability - personally responsible for all business debts
- harder to raise money - difficult to get loans or attract investors because business is tied to 1 person

Question 10

What are the 3 types of partnerships?

Answer 10

Ordinary partnerships
Limited liability partnerships
Limited partnerships

Question 11

List the five clauses typically found in an ordinary partnership agreement

Answer 11

1. The right to an equal share in the partnerships profits
2. The right to take part in the management of the partnership
3. A prohibition on any person being admitted as a partner without the consent of all the other partners
4. A prohibition on a partner being expelled from the partnership unless all the other partners so agree.
5. The terms of a partnership agreement can be altered if all the partners consent.

Question 12

List five types of companies that can be incorporated under the Companies Act 2006.

Answer 12

1. A public company limited by shares
2. A private company limited by shares
3. A private company limited by guarantee
4. A private unlimited company without a share capital
5. A private unlimited company with a share capital

Question 13

List the four size classifications for companies

Answer 13

Micro entity
Small
Medium sized
Large

Question 14

Explain the difference between a ‘quoted company’ and a ‘listed company’.

Answer 14

The FCA handbook defines a listed company as a company with a class of its securities listed on the UK official list.
Section 385 of the CA2006 states that a quoted company is a company who’s share capital:
- has been included on the UK official list
- is officially listed in an EEA state
- is admitted to dealing on the NY stock exchange or NASDAQ

Question 15

What is an overseas company?

Answer 15

• A company incorporated outside the UK may wish to do business in the UK
• An overseas company is a company incorporated outside the UK (CA2006, s.1044)
• If such company opens a ‘branch’ or ‘establishment’ in the UK, it will be required to provide certain information to Companies House regarding the overseas company and the branch or establishment
• failure to provide this information is a criminal offence (CA2006, s.1054)

Question 16

What is a mural organisation and provide an example of one?

Answer 16

Financial organisations which are run in the benefit of those members who use its services or which are run for the benefit of the community and not just its members

Eg building society