Business Organisations

Types of Business Organisation

The AQA specification covers four types of business organisation.

Sole Trader

• Owned and managed by one individual
• No legal distinction between owner and business — they are the same legal entity
• Unlimited liability — the owner is personally responsible for all business debts
• No formal registration required (must register for self-assessment tax with HMRC)
• Profit taxed as personal income via self-assessment
• Can employ others but only one owner

Partnership

• 2–20 partners jointly own and run the business
• Governed by the Partnership Act 1890 if no Deed of Partnership exists
• Unlimited liability — each partner is personally liable for all debts of the business (including debts created by other partners)
• A Deed of Partnership is a written agreement setting out:
  • Profit-sharing ratio
  • Partners' salaries and interest on capital
  • Procedures for resolving disputes
  • How a partner may leave or join
• Without a Deed, Partnership Act 1890 applies: profits split equally, no salaries, no interest on capital or drawings

Private Limited Company (Ltd)

• An incorporated entity — a separate legal person from its shareholders
• Limited liability — shareholders can only lose the amount invested in shares
• Shares cannot be offered to the general public; sold privately (to family, friends, private investors)
• Must register at Companies House and file annual accounts (which are publicly available)
• Managed by directors (often the same people as shareholders in small companies)
• Must comply with the Companies Acts
• Subject to corporation tax on profits

Public Limited Company (plc)

All the features of a Ltd, plus:

• Minimum issued share capital of £50,000
• Can advertise shares to the general public and list on a stock exchange (e.g. London Stock Exchange)
• Subject to stricter regulation: Listing Rules, UK Corporate Governance Code
• Annual accounts must be filed, audited and are publicly available
• Separation of ownership (shareholders) and control (directors) is most pronounced
• Risk of hostile takeover bids — anyone can buy shares on the open market