1. LEGAL IDENTITIES
CHAPTER 8

2. CHOICE OF BUSINESS ORGANISATION
SMALL
BUSINESS
Sole
Ownership
Shared
Ownership
Sole Trader
Limited
Company
Partnership
Limited
Company
Cooperative

3. Limited Company

4. Limited Company
Responsibilities
 Shareholders Responsibilities.
 Directories Responsibilities.
 To act honestly, and in the company’s
best interests.
 To have regard for the interests of
employees as well as shareholders.
 To comply with the requirements of the
companies Act.

5. Limited Company
The Memorandum & Article of Association
 Memorandum of Association.
 Name of the Company.
 Location of the registered office.
 The objects of the company.
 The limited liability of the shareholders.
 The share capital and structure.
 The name of signatories.
 Articles of Association.
 Formation of a Limited Company.

6.  Limited liability for shareholders.
 Some Formalized structures (e.g.
directors meetings) make management
clearer.
 Income tax paid only on salaries drawn;
higher rates of personal tax can be
avoided when profits are retained.
 No limited to contributions made to a
pension scheme with tax relief.
ADVANTAGES
Limited Company

7.  Finance easier to raise externally
especially from equity.
 Easier to widen ownership base.
 Existence not threaten by death or
personal bankruptcy of one of owners.
 Possibly higher perceived status.
ADVANTAGES
Limited Company

8.  More time consuming & expensive to
setup.
 complicated & time consuming to
conform to requirements of Companies
Act.
 Loss of confidentiality as some records
are publicly filed.
 Audit & accounting costs higher.
 Higher national insurance contributors.
DISADVANTAGES
Limited Company

9.  Double tax when company pays
corporation tax on profits & capital
gains, and shareholders are personally
taxed on dividends.
 As employees, directors have worse
cash flow of taxes under PAYE than self-
employed.
 Limited liability reduced.
 Directors can be held personally liable if
company trades while insolvent.
DISADVANTAGES
Limited Company

10. SOLE TRADER

11.  Legal Status
 Setting Up & Record keeping.
SOLE TRADER

12.  Straight forward & easy to setup.
 Make all the decisions & keep all the
profits.
 No audit of accounts required legally.
 No public disclosures of records.
 Business losses can be offset against
other income.
 Self-employment defers income tax &
reduces national insurance
contributions.
SOLE TRADER
ADVANTAGES

13.  Unlimited Liability.
 No additional funds.
 Transfer of ownership less flexible.
 Possible status problems perceived by
third parties.
 All profits taxed as personal income.
 Self-employed national insurance
entitlements have less benefits.
 Tax relief on pension contributions
restricted.
SOLE TRADER
DISADVANTAGES

14. PARTNERSHIP

15. Partnership Act 1890…
 All partners have an equal vote in
how the business should be run;
 All partners have invested equally
in the business;
 All partners have an equal share of
profits;
 Partners will not receive any salary;
 Partners will not receive interest on
their capital invested.
PARTNERSHIP

16. The Partnership Agreement
 Details of Partners.
 Duration of Partnership.
 Capital contributed by partners.
 Calculation & division of profits.
 Management & control of business.
 Dissolution.
PARTNERSHIP

17. PARTNERSHIP
 Partners’ Responsibilities.

18.  Easy to setup.
 Access to the experience of other
partners.
 No audit of accounts legally required.
 Confidentiality is maintained.
 Losses from the business can be offset
against other income.
 Can be relatively easily transferred to
a limited company.
 Benefits of self-employment.
PARTNERSHIP
ADVANTAGES

19.  Liable for debts.
 Partners estate can still be liable for their after
death.
 Death, bankruptcy retirement dissolves
partnership.
 Less flexibility in transferring ownership.
 High Degree of mutual trust required.
 Profits taxed as income.
 Self-employed national insurance entitlements
have less benefits.
 Tax relief on pension contributions restricted.
PARTNERSHIP
DISADVANTAGES

20. CO-OPERATIVES

21. CO-OPERATIVES
Industrial & Provident Societies Act 1965-75
 Controlled by members.
 Membership is not restricted.
 Each member has equal vote.
 Surpluses & profits are shared between
members.
 Share capital remains at its original value.
 Interest is limited.

22. CO-OPERATIVES
 Background.
 Types of co-operative.
 Endowed Co-operatives.
 Defensive Co-operatives.
 Job-creation Co-operatives.
 Alternative Co-operatives.

23.  High level of commitment.
 Increased motivation.
 Equal sharing.
 Higher satisfaction from work.
CO-OPERATIVES
ADVANTAGES

24.  Lack of management.
 Insufficient Finance.
 Difficulties to access market place.
 Difficult economic conditions.
 Decision making can become
confused.
 Finding members is difficult.
 Low survival rate.
CO-OPERATIVES
DISADVANTAGES

25. Checklist for choosing appropriate formChecklist for choosing appropriate form
Categories
Liabilities
Records &
Accounts
Setting Up
Company
Liability Limited,
but personal
guarantees &
directors’
obligations can
reduce
limitations.
Legal
accounting &
audit
requirements.
Account filed
open to
inspection.
Formalities of
registration,
although can
buy off-the-peg.
Sole trader
All assets liable
including those
not involve in the
business.
No strict
accounting or
audit
requirements.
Records not
available for
public inspection.
No formalities
except
registering as self-
employed.
Partnership
Liabilities extends
to business debts
of other partners.
As for sole trader.
As for sole trader,
except partnership
agreement strongly
advised to prevent
problems, specially
of dissolution.

26. Checklist for choosing appropriate formChecklist for choosing appropriate form
Categories
Raising
Money
Selling Up
Status
Tax,
National
Insurance &
Pensions
Company
Wide choice,
including further
equity
investments.
Flexible, as can
sell part of all of
shares.
Possibly higher
perceived status.
Employee status
PAYE, high national
insurance, but full
benefits. unlimited
co. contributions on
pension. Corp. tax
on co. profits.
Losses retained in
co.
Sole trader
Operations
limited to
overdraft or loan.
Can only sell
assets; difficult if
selling part of
business.
Possibly lower
perceived status.
Insurance cheaper
but fewer benefits.
Tax-deductible
pension
contributions
restricted. Losses
can be offset
against tax on
other income.
Partnership
Overdrafts, loans
or new partners
with money.
As for sole trader.
As for sole trader.
As for sole trader.

27. THANK YOU