Legal Forms of Business
Legal Forms of Business
Partnerships
Definition
“Relation which subsists between persons carrying on a business with common view to profit”
In a Partnership:
You want it to be really easy to set up
You can lose all your money and even your possessions if you fail
You want to keep all you financial affairs private
You want to share control with a few other people
You want to share profits with a few other people
You want other people to be able to make decisions without consulting you, even though you may lose money because of this
You want to be able to sell your business to someone else
Deed of Partnership
This is a legal document that states partners’ rights in the event of a dispute, it covers the following issues:
How much capital each partner will contribute
How profits and losses are shared amongst the partners
The procedure for ending a partnership
How much control each partner has
Rules for taking on new partners
Financing
A firm might find that each partner specialises in one aspect of finance, for example: tax, law, investments, or VAT returns.
Control
The size of a partnership is limited to a maximum of 20 partners with a minimum of two. All partners have a certain amount of control within the business, but some have more than others do.
Advantages of a Partnership
There are no legal formalities to complete when setting up
Each partner can specialise in the tasks they do best
More finance can be raised than if the firm was a sole trader
Partners can share the workload
Since the type of business is larger than a sole trader it is in a s stronger position to raise more money from outside the business
Disadvantages of a Partnership
The individual partners have unlimited liability
Profits have to be shared amongst more owners
There may be conflicts of interest amongst partners
The size is limited to a maximum of 20 partners
The partnership ends when a partner dies
Any decisions made by one partner is legally binding on all partners
Examples
Partnerships are often found in accountants, doctors, estate agents, solicitors, and veterinary surgeons.
Sole Trader
Definition
A Sole Trader is a company owned, financed and