Accounting - Business Legal Structures

Sole Trader

• Only 1 person owns and controls business - Can employ employees
• Owner provides business capital
• All profits belong to him
• Owner takes profits out as drawings pf cash/goods - Can withdraw capital if needed
• Business has no separate legal status
  • No limited liability, personally liable for any debts outstanding if assets etc can not pay creditors, forced to sell personal possessions

Partnership

• 2 and 20 people own business/control it - Some may not participate in day to day running, known as Sleeping Partners
• Each partner may provide business capital - Does not have to be equal
• Partnership agreement may be set up to decide rate of interest on capital and drawings, how profits are shared, Salaries
• If no partnership agreement follow rules of Partnership Act 1890
• Partnership may employ other people
• Business has no separate legal status
  • Unlimited Liability - Each partner responsible for debts of business

Limited Company

• Owned by shareholders - Minimum of 1
• Business has separate legal status from its owners - Can be sued 
• All companies have limited liability
• Shareholders provide capital by purchasing shares for…