Accounting - Business Legal Structures

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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


  • 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…


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