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Business Law A2 Mai Huong (Recovered)
Business Law A2 Mai Huong (Recovered)
1. Definition
Sole trader sole trader also known as sole proprietorship. Sole trader is an
unincorporated company in which it run and owned by 1 person. The
owner of sole trader has unlimited liability for all their debts
(Government Digital Service, 2012)
Partnership A company with 2 or more people running the company together, they
both own and share income. All partners share profit and loss,
partnership entity must go with its operators (Qld.gov.au, 2017)
Private company
Public company
2. Characteristics
Sole trader + the main characteristic of sole trader is the person who owns and runs
the business also the management and they could hire assistant to
control the business activities.
+ second characteristic is sole trader company's owner have limited
liability. For example, some small and household company such as
salon, grocery (Government Digital Service, 2012)
+ sole trader has easier tax reporting process by sole trader to report
business income and expenses on schedule C of PIT return.
Additionally, sole trader is allowed to be taxed at the owner's own rate
+ Investments cannot be raised by selling shares or buying shares from
partners
Partnership Partnerships have 8 characteristics including
+ membership: from 2 to 100 people and they need to have full legal
capacity (Business Jargons, 2016)
+ unlimited liability: individual and joint liability for all debts and
obligations of the company
+ sharing and loss according to signed agreement, if there is no
agreement between general partners, profit and loss will be equally
divided (Business Jargons, 2016)
+ mutual agency: a member has unlimited and joint responsibility.
which means each partnership member's activity forces both the
company and their own copy (representative for all the company)
+ voluntary registration (not compulsory but recommended) brings
benefits to the company
+ continuity: partnership can be dissolved when the partnership ends,
e.g., retirement, bankruptcy, or insanity of any general partner. If the
partners still want to stay active, they must sign a new agreement
+ contractual relationship: a relationship between the members of a
partnership that has a contract including written, oral or implied
contracts (Business Jargons, 2016)
+ transfer of interest: need the consensus (unanimous) of all partnerships
when having interest transfer for any others company (Business Jargons,
2016)
Private company
Public company
3. Legal structure
Legal entity Ownership Liability Life cycle
Sole trader Does not Owner is 1 Unlimited Depend on owner life
exist any person and finance value of
Partnership legal person Owners are company
minimum 2
people
Private Legal person The number at a Limited Unlimited duration of
company is existing range of 2-100 existence, does not
owners depend on the owner
Public The number of and owner’s financial
company owners is not ability
limited
4. Formation
Sole trader Step 1: checking the suitable of being a sole trader
When sole trader company be set up, owner need to tell HMRC (Her
Majesty's Revenue and Customs) that tax is paid through self-
assessment and a tax return have to be filed every year.
Step 2: name choosing for company which you want to use and
trade under
Name
Step 3: check records which need to be kept
Sole trader’s responsibilities include business’s records, expenses
keeping and personal income’s records
Step 4: tax registration
using HMRC’s calculator to have supporting from budgeting for income
tax on business profits and class 2, class 4 National insurance
Moreover, if sole trader company have turnover over 85,000, sole trader
must register for VAT. The volunteer registration could be applied if
your company suitable with it.
If company working in construction industry, sole trader needs register
subcontracts and contracts with HMRC
Partnership - Setting up LPs
+ Business owners and partners + have at least one "general
need to share responsibility for partner" and one "limited partner"
business includes: all losses that and all general partners must pay
the business creates, invoices of tax based on their profits
things bought for the company - Setting up
+ Partnerships share business + choose a suitable and comply
profits, and each person must pay with the provisions of the business
their own tax corresponding to name
their share. + Registered business address
+ A partner is not necessarily a (company location)
person (an individual) but can be a + Appointment of limited partners
limited company which is and general partner
considered a partner and can be a + make a registration with
"legal person" Companies House
- Works need to do LLPs
+ name choosing An incorporated company with at
+ "Nominated partner" choosing in least two of them, a member may
which the responsibility of be a company which called
"nominated partner" is to manage "corporate member" (Companies
the tax returns of general partners House, 2014)
and the reports and documents of - Setting up
the company. + a company's name must be
+ make a registration with HMRC chosen
(Government Digital Service, Registered company address and
2012) this address must be published
+ at least 2 members must be
designated
+ create an agreement of how LLP
will be run
+ Register the company in the form
of LLP with Companies House
(Companies House, 2014)
Private company
Public company
5. Management
Management Difference duties of Duties of director
director
6. Sources of finance
Sole trader 2 main sources of fund are capital equity and capital debt. Majors rely
on own resources including saving, profits and to raise the money from
bank loans and credit card, sole trader needs putting up own money,
money which borrowed from relatives and friends, Retained Earnings
Reinvesting, Sole Proprietors Grants, Conventional loans from a bank,
Financing Credit Cards, Stock and Properties Disposal, Financing Trade
Credit (Jayne, 2019)
Partnership + Financial resources from equity capital are available from personal
savings, profits from business, money from selling assets, adding capital
from existing partners, venture capital sources from venture capitalists
with large capital to finance business activities for partnerships
+ Debt capital: Raising funds by borrowing from financial institutions
or from banks (Bizfluent, 2017). When borrowing money from a bank,
partnership must report the financial situation of the company, partners
so that the bank can agree to lend.
Private company
Public company