Legal structures for small businesses

  • Created by: EReynolds
  • Created on: 12-06-15 21:53

Sole Trader

A sole trader is a business that is owned and run by one person who raises the finance himself or herself, from personal sources (own funds) or by burrowing. The owner has sole controlof the business, makes all the decisions and receives any profit. 

Sole trader gain from being independent. Raising more finance is often hard, so expanding the business may be difficult.

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A partnership is a business owned by two or more people jointly. Partnerships benefit from shared responsibility and extra expertise.

Owners raise the finance themselves , from personal sources or by borrowing.The joint owners receive any profit and shre risk equally unless a deed partnership states otherwise.

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Sole trader and Partnership

Sole traders and partnerships are easy to set up and can keep finances private.

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Owners (Liability)

Owners are personally responsible for all the debts of the business. Each owner has unlimited liability and is responsible for debts up to the whole extent that he or she is able to pay. This means that their personal possessions may be at risk. If owners cannot pay they may be made bakrupt.

Liability means the responsibility of the owner for the debts of the business. It is possible to limit this.

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Private limited companies

Private limited companies have limited liability. This can be of benefit to the business's reputatiion, but banks may be reluctant to lend to small companies, without guarentees. Private companies have to be llegally established and registered at companies house.

They must produce certain accounts, which are available to the public. If the business cannot pay its debts, it may fail. For a company this is called insolvency.

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legal existence

A company has a legal existence separate from its owners, so it can be passed to differnt owners. This is called continunity.

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