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 THE BUSINESS AS A LEGAL ENTITY

The basic legal distinction between types of business enterprise is their status as corporate or non-corporate organisations:
•Non-corporate organisations are those which do not have a separate legal identity from their owners. The main forms of non-corporate organisations are sole traders and partnerships.
•Corporate organisations are those where the legal status of the organisation is separate from that of the owner. The main categories of corporate organisations are private limited companies and public limited companies (plc).
 
Limited and Unlimited Liability
•Unlimited liability means that the individual owner or owners of an organisation have unlimited liability for all debts or actions taken by the business. If, say, the organisation fails, the owner(s) would be liable for the full extent of any debts of the organisation and would have to use all their personal resources to meet those debts.
•Limited liability means that the responsibility of the owners of a business for its debts or actions is limited in some way. In practical terms, this means that the shareholders who are its legal owners are not liable for any debts of the organisation beyond the amount they have paid or agreed to pay for their shares. They may lose all the money they have invested in the company, but cannot be called upon to pay any more. (Thus, the term "limited" in public or private limited companies means that the organisations – or more properly, the owners/shareholders – enjoy limited liability.)
 
Main types of business structure in the UK
There are three basic types of business ownership:
•Sole proprietorship or sole trading
•Partnership
•Company

The structure you choose will define legal responsibilities and duties, like the paperwork you must fill in to get started, the taxes you will have to manage and pay, and the profits which may be made and withdrawn
 
Registering as a Sole Trader

Trading Name
•As a sole proprietor if you going to trade under a name which is different from your personal one you must display the name/s of the owners and an address where documents can be served on all business stationery and at your premises.
•It is not compulsory to register a business name but you can do so with the National Business Register. You also need to be careful about choosing a name since the wrong name can get you into difficulties.
 
Inform the authorities
•You must register as self-employed for income tax and national insurance contributions with the HMRC (HM Revenue and Customs) within three months from starting up.
•This period starts from the last day of your first month of trading and if you fail to meet this timeframe you can face a £100 fine plus interest on any taxes due
 
Legal responsibilities
As a sole trader you are personally responsible for:
•any losses and debts your business makes;
•bills for anything you buy for your business, like stock or equipment;
•keeping records of your business’ sales and expenses;
•sending a Self-Assessment tax return every year;
 
Forming a limited company
Companies normally have two or more individuals wishing to start a business together. They are required to file a number of documents to establish the company, including:
• Articles of Association – this is the document which sets out the rules by which shareholders and the company will be administered, for example voting rights, powers of directors.
•Memorandum of Association – this document sets out the company name, status, address of the registered office, objectives of the company, statement of limited liability and amount of guarantee.
•Statement of Capital – this gives details of the types of share (ordinary, preference, etc.), the amount paid up and unpaid on each share, the number of shares issued, the nominal value of shares issued, voters rights and the shareholder's details.

•Public limited companies must also issue a prospectus which describes the history of the firm, its future prospects and the terms on which it offers its shares.
•If the Registrar of Companies approves the application, a Certificate of Incorporation is issued.
 
Legal structure
•A limited company allows running a business through a legal entity separated from its members. This means that it can carry on business in its own name and with its own identity, as it enjoys full legal personality.
•A company can autonomously enter into contracts, incur debt, own property, borrow or lend money, and sue or be sued without involving its members’ liability.

There are four types of company structures available under UK law: -
•Private companies limited by guarantee;
•Private companies limited by shares (known as private limited companies or LTD);
•Public limited companies (known as PLC);
• Community interest companies.
 
Private companies limited by Guarantee
 
•A Company Limited by Guarantee is an alternative type of company usually used primarily for non-profit organisations that require corporate status.
•It does not have share capital and has members who are guarantors instead of shareholders.
•Guarantee companies include clubs, membership organisations, sports associations and some charities.
 
 
Private companies limited by Shares
•A private limited company is one in which the owners hold a percentage share of the value of the company. Often this is dictated by the amount of the capital sum or the value of the property that each person contributed to the company.
 

•There must be at least two directors.

•Owners of private limited companies have limited liability for the debts of the company up to the amount they originally invested.
•Private companies do not trade their shares to the public, but can offer shares to business contacts. This constraint often restricts raising capital for growth so that most private limited companies remain relatively small.

•In Private companies limited the shareholders are not liable for anything more than the nominal value of their shares.
•Shareholders are not entitled to run the company, unless they are members of the Board of Directors, a panel responsible for the daily business management.
 
Public Limited Companies
•A public limited company (plc) is a company that trades shares nationally and or internationally. It can sell shares directly to the public or through an investing institution.
•A plc is owned by the shareholders who have bought an interest in the company. Their liability is limited to the value of their original purchase of shares.
 
Conditions of PLC
In the UK, a public limited company must satisfy the following conditions:
• A minimum of paid up share capital of £50,000
• There must be at least two shareholders
• There must be at least two directors
• The right to offer its shares (and debentures) to the general public
•A certificate from the Register of Companies that states these requirements have been met
•A memorandum that states it is a public limited company
 
Partnerships
•The legal definition of a partnership was put forward in the Partnership Act 1890 as: "The relation which subsists between persons carrying on a business in common with a view of profit".
•Partnerships offer a business the opportunity to share skills and workload, and importantly, to raise more capital than would be available to a sole trader.
•Common examples of partnerships include the practices of doctors, solicitors, accountants, estate agents, architects and auctioneers.
 
Charitable Status
•In the UK, applications for charitable status are usually made to Charity Commission. And organisation may apply for charitable status if its aims are exclusively for the "public benefit".
 
Categories of Charities
There are currently four categories under which an organisation may qualify:
• Educational advancement
• Poverty relief
• The advancement of religion
• Purposes beneficial to the community.
 
 

 



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