PARTNERSHIP OR LIMITED COMPANY

Sole Trader

One person who owns the business irrespective of its size. Legally there is no division between the business and the proprietor, although as we have seen they are administratively independent. There are few government requirements and no legal necessity to have accounts audited. If the proprietor wishes to discontinue the business and it is solvent, there are no particular formalities required. The proprietor has unlimited liability in respect of all debts. Any personal assets can be lost to pay business debts.

The main points for a sole trader can be summarised as follows:

1.    Self employed and is not recognised in law as a separate entity for business purposes.
2.    Carries all responsibility for running the business.
3.    Takes all the profit.
4.    Can lose all personal possessions and be made bankrupt.
5.    Lliable for all debts incurred.
6.    Can he sued, or can sue other persons or organisations.
7.    Not regulated by specific laws, but must comply with all national and local laws and bylaws.
8.    Does not have to register the business, but may have to disclose the ownership.
9.    Must register with the Inland Revenue and the Department of Social Security.
10.  May have to register for VAT.
11.  Can prepare and submit his own accounts to the Inland Revenue.

Partnership

Two or more persons who are running the firm together, and who intend to share the profits. Losses are not necessarily shared in the same ratio as profits. One partner can, under certain circumstances, be liable for all the debts of the partnership.

No formal agreement is necessary, but it is highly desirable and should cover the following:

1.    Amounts of capital to be contributed by each partner.
2.    How profits and losses are to be divided.
3.    Duties of the partners.
4.    What happens on the death of a partner.
5.   How assets are to be valued on changes in partnership.
6.    In the absence of a formal partnership agreement the Partnership Act 1890 applies.

The advantages of a partnership include:-

1.    Shared responsibility.
2.    Additional capital available.
3.    Cover for illness and holidays, etc.
4.    Greater range of skills available.

Remember, however, liability is unlimited for partnership debts. The main points for a partnership can be summarised as follows:

1.    Members of Partnerships are all regarded as self employed and all the comments made concerning sole traders apply.

2.    A partnership agreement should be drawn up. This is advisable, but not a legal requirements. In the absence of a partnership agreement the Partnership Act of 1890 applies.

3    All partners act as agents for each other. The acts of one partner in the name of the partnership is binding on all other partners.

Limited Company

Two or more people decide to purchase an interest in a business, which trades independently of them. They may or may not be involved in the day to day running of the business.

The owners’ subscribe for share capital which will be in the form of shares of any denomination. The liability of the shareholders for the business debts is limited to the amount they have to pay for their shares.

The main points for a limited company can be summarised as follows:-

1. On inception the persons involved must:

• Sign a Memorandum of Association.

• Sign Articles of Association.

• Take at least one share.

• Appoint the first directors.

• Appoint a company secretary.

• Take and retain formal minutes of meetings.

• Apply for registration with the Registry of Companies.

2. On receipt of Certificate of Incorporation:

• Acquire a company seal.

• Issue Share Certificates to shareholders.

• Then commence trading.

3. Is recognised in law as a legal entity.

4. Can be sued, or can sue other persons or organisations.

5. Can own property, goods and equipment.

6. Can employ people. Directors are employees.

7. Must hold Annual General Meeting of shareholders.

8. Can pay Dividends to shareholders.

9. Must have accounts audited by a qualified and independent person.

10. Must pay Corporation Tax on profits.

11. Must make annual returns to Registry of Companies.

12. Must conform to all laws as above, and the Companies Acts.

This has been a bit formal. It is important that you understand these legal matters, and you should carefully consider your position. If you are borrowing money then you need to carefully consider your position.

MORE INFORMATION
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