BLP WS1
Types of business entity
Brief overview of different structures
Type What is it? Advantages Disadvantages
Incorporated Businesses can be run in incorporated or
and unincorporated form
unincorporated
Unincorporated: treated as being the same as its
business
owners – no separate legal status ( sole trader &
partnership. Few or no administrative steps to be
formed under law
Incorporated: legal entities with an existence
separate from that of their owners ( Private &
public company; Limited liability partnership ) .
must have formal registration process
Sole trader Someone who runs a business on his own as a self- Easy to form ( no Unlimited liability for
employed person. formal steps) business debts: personal
Sole trader is a person ALONE who: Freedom to run as assets may be used to repay
Has the right to make all the decisions owner sees fit debts
affecting the business; Sole decision-maker Lacks status of incorporated
Owns all the assets of the business; All profits belong to forms
Is responsible for paying income tax on all the owner No day-to-day support
profits of the business; and
Has unlimited liability for the debts of the
business. ( no legal entity)
Partnership Governed principally by the Partnership Act 1890: Very easy to form No separate legal status so :
see below for more detail. (only require two Unlimited liability for firm’s
S.1 PA 1890: occurs where two or more people) debts,( Personal assets can
persons run and own a business together No formalities be used to pay off debt) &
with a view to make a profit. required to form joint & several liability. –
Is unincorporated Freedom to run as allows creditor choice of
runs on the basis of contract – written or oral owners see fit seeking full amount of debt
partners divide profit or losses between them Support of joint from any 1 partner or from
– unless another agreement? Also CHECK PA decision making all together.
All profits belong to Decision making can be
owners – the partners cumbersome
Lack of written agreement
Summary , Partnership consists of two or more
lead to uncertainty
persons who on the basis of contract ( whether
Lack status of incorporated
written or not) between them :
forms
a) share right to take part in decision
Leaving partner must be
making affecting the business or business
brought out by remaining
assets
partners (may not be
b) share ownership of assets
favourable)
c) share profits of business (though
On death/retirement of
agreement may be to contrary)
partner, if not agreed to be
d) share unlimited liability for debts of
bought out by remaining
business ( though if one doesn’t pay,
partners, partnership will
others must pay his share)
end
LP A form of unincorporated business is established Limited liability for Must register to set up
under the Limited Partnerships Act 1907. business debts Information (inc finances)
Similar to partnership in that there must be at Freedom to run as made public
least one general partner who has unlimited business owners see Some extra formalities and costs
liability. fit to run
However, an LP is permitted to have a limited Support of joint decision-
1
,BLP WS1
partner whose liability is limited to the making
amount he initially invested, BUT limited
liability of limited partner is conditional on
his:
Not controlling or managing the LP
Not having the power to take binding
decision on behalf of the LP
Not removing his contribution to the LP
for as long as he is in business.
if LP breaches ^ will loose protection
of limited liability = general partner with
unlimited liability
Unlike ordinary partnerships, LPs must be
registered with the Registrar of Companies : s.8
LPA 1907
Contractual Form of association that is less formal than a Lack of formalities lack of identify
cooperation partnership. Can be as simple as entering an Agreement can be lack of organisational
agreement to share costs and resources between kept confidential structure
parties danger of fulfilling s.1 and
becoming partnership
Company Formed by registering documents with Registrar Division of Cant start trading
of Companies in accordance with CA 2006 responsibility – immediately such as sole
imposes degree of traders/ partnerships
can be limited or unlimited company formality unlike
partnerships & sole
traders
Separate legal entity. A ‘legal person’ with its
own rights & obligations
Legal Services Act 2007 – law firms can be
companies
Directors (manage day to day)
Members/ shareholders (own the company)
Formation
CA 2006, must file series of documents with
Registrar of C’s at Companies House & pay fee
Paper application processed (5 days),
electronic (within 24 hours)
Once completed registration – Registrar issues
a certificate of incorporation
Limited S.3(1) CA 2006: liability of its members is Limited liability for Must register to set up
company limited by its constitution business debts Extra formality and costs to
Constitution of a company : set of rules Greater status than run
governing the running of the company other forms Extra legal duties and
Potentially larger pool potential liability for
Limited company can limit liability of its members of investors directors
by : Information (inc finances)
a) Shares made public
Most common Profits earned by company,
2 forms : private company limited not owners directly
by shares OR public company
limited by shares
b) Guarantee: S.3(1)
Limited by members guarantee
Where C is wound up, members will
pay specified sum to creditors:
S.3(3) CA. owners liability is limited
to the sum ( usually £1)
2
, BLP WS1
Used for organisations not seeking a
profit e.g charities, members clubs
Private limited company ‘Ltd’ or ‘Limited’
S.4(1)CA 2006 : ‘ any company that is not a
public company’
Raises money for its purposes ONLY from
restricted circle of investors
S.7555 CA prohibits private company to raise
money from members of the public at large
by issuing securities such as shares
Not subject to income tax, but corporation tax
Partnerships
Approach to an exam question
also look at ws 1 table
1 Is there a partnership?
2 Who are the partners? Are they still partners?
3 What type of partnership is it?
Fixed / At will?
GP / LP / LLP?
4 What are the relevant terms?
Express by oral/written agreement – s.19 PA 1890
Inferred from conduct?
Implied by PA 1890, LPA 1907, LLPA 2000
5 Apply to facts
6 Conclude
Watch out for
The time frame – is there a gap? What could have happened in between?
Profit – be careful, have they been deliberately vague? Is it interest? An agreed payment?
Consultancy fee?
Do you need more information? Ask questions!
Restating statute terms? Clarity, contractual remedy.
What will happen to the partnership on dissolution? On death of a partner? Try and
think of questions that will be asked by the partner in this scenario…
A partnership – either an express agreement which a sol needs to be able to ascertain the
terms of and advise on, or an implied agreement by conduct/ PA 1890 which again need
to be able to advise on.
Acting as agent? Do they have a share of the profits?
Recognising the existence of a partnership
3
Types of business entity
Brief overview of different structures
Type What is it? Advantages Disadvantages
Incorporated Businesses can be run in incorporated or
and unincorporated form
unincorporated
Unincorporated: treated as being the same as its
business
owners – no separate legal status ( sole trader &
partnership. Few or no administrative steps to be
formed under law
Incorporated: legal entities with an existence
separate from that of their owners ( Private &
public company; Limited liability partnership ) .
must have formal registration process
Sole trader Someone who runs a business on his own as a self- Easy to form ( no Unlimited liability for
employed person. formal steps) business debts: personal
Sole trader is a person ALONE who: Freedom to run as assets may be used to repay
Has the right to make all the decisions owner sees fit debts
affecting the business; Sole decision-maker Lacks status of incorporated
Owns all the assets of the business; All profits belong to forms
Is responsible for paying income tax on all the owner No day-to-day support
profits of the business; and
Has unlimited liability for the debts of the
business. ( no legal entity)
Partnership Governed principally by the Partnership Act 1890: Very easy to form No separate legal status so :
see below for more detail. (only require two Unlimited liability for firm’s
S.1 PA 1890: occurs where two or more people) debts,( Personal assets can
persons run and own a business together No formalities be used to pay off debt) &
with a view to make a profit. required to form joint & several liability. –
Is unincorporated Freedom to run as allows creditor choice of
runs on the basis of contract – written or oral owners see fit seeking full amount of debt
partners divide profit or losses between them Support of joint from any 1 partner or from
– unless another agreement? Also CHECK PA decision making all together.
All profits belong to Decision making can be
owners – the partners cumbersome
Lack of written agreement
Summary , Partnership consists of two or more
lead to uncertainty
persons who on the basis of contract ( whether
Lack status of incorporated
written or not) between them :
forms
a) share right to take part in decision
Leaving partner must be
making affecting the business or business
brought out by remaining
assets
partners (may not be
b) share ownership of assets
favourable)
c) share profits of business (though
On death/retirement of
agreement may be to contrary)
partner, if not agreed to be
d) share unlimited liability for debts of
bought out by remaining
business ( though if one doesn’t pay,
partners, partnership will
others must pay his share)
end
LP A form of unincorporated business is established Limited liability for Must register to set up
under the Limited Partnerships Act 1907. business debts Information (inc finances)
Similar to partnership in that there must be at Freedom to run as made public
least one general partner who has unlimited business owners see Some extra formalities and costs
liability. fit to run
However, an LP is permitted to have a limited Support of joint decision-
1
,BLP WS1
partner whose liability is limited to the making
amount he initially invested, BUT limited
liability of limited partner is conditional on
his:
Not controlling or managing the LP
Not having the power to take binding
decision on behalf of the LP
Not removing his contribution to the LP
for as long as he is in business.
if LP breaches ^ will loose protection
of limited liability = general partner with
unlimited liability
Unlike ordinary partnerships, LPs must be
registered with the Registrar of Companies : s.8
LPA 1907
Contractual Form of association that is less formal than a Lack of formalities lack of identify
cooperation partnership. Can be as simple as entering an Agreement can be lack of organisational
agreement to share costs and resources between kept confidential structure
parties danger of fulfilling s.1 and
becoming partnership
Company Formed by registering documents with Registrar Division of Cant start trading
of Companies in accordance with CA 2006 responsibility – immediately such as sole
imposes degree of traders/ partnerships
can be limited or unlimited company formality unlike
partnerships & sole
traders
Separate legal entity. A ‘legal person’ with its
own rights & obligations
Legal Services Act 2007 – law firms can be
companies
Directors (manage day to day)
Members/ shareholders (own the company)
Formation
CA 2006, must file series of documents with
Registrar of C’s at Companies House & pay fee
Paper application processed (5 days),
electronic (within 24 hours)
Once completed registration – Registrar issues
a certificate of incorporation
Limited S.3(1) CA 2006: liability of its members is Limited liability for Must register to set up
company limited by its constitution business debts Extra formality and costs to
Constitution of a company : set of rules Greater status than run
governing the running of the company other forms Extra legal duties and
Potentially larger pool potential liability for
Limited company can limit liability of its members of investors directors
by : Information (inc finances)
a) Shares made public
Most common Profits earned by company,
2 forms : private company limited not owners directly
by shares OR public company
limited by shares
b) Guarantee: S.3(1)
Limited by members guarantee
Where C is wound up, members will
pay specified sum to creditors:
S.3(3) CA. owners liability is limited
to the sum ( usually £1)
2
, BLP WS1
Used for organisations not seeking a
profit e.g charities, members clubs
Private limited company ‘Ltd’ or ‘Limited’
S.4(1)CA 2006 : ‘ any company that is not a
public company’
Raises money for its purposes ONLY from
restricted circle of investors
S.7555 CA prohibits private company to raise
money from members of the public at large
by issuing securities such as shares
Not subject to income tax, but corporation tax
Partnerships
Approach to an exam question
also look at ws 1 table
1 Is there a partnership?
2 Who are the partners? Are they still partners?
3 What type of partnership is it?
Fixed / At will?
GP / LP / LLP?
4 What are the relevant terms?
Express by oral/written agreement – s.19 PA 1890
Inferred from conduct?
Implied by PA 1890, LPA 1907, LLPA 2000
5 Apply to facts
6 Conclude
Watch out for
The time frame – is there a gap? What could have happened in between?
Profit – be careful, have they been deliberately vague? Is it interest? An agreed payment?
Consultancy fee?
Do you need more information? Ask questions!
Restating statute terms? Clarity, contractual remedy.
What will happen to the partnership on dissolution? On death of a partner? Try and
think of questions that will be asked by the partner in this scenario…
A partnership – either an express agreement which a sol needs to be able to ascertain the
terms of and advise on, or an implied agreement by conduct/ PA 1890 which again need
to be able to advise on.
Acting as agent? Do they have a share of the profits?
Recognising the existence of a partnership
3
