| Entity Type | Advantages |
Sole Trader:
A sole trader is an individual who carries on business in their personal capacity.
The main advantage of being a sole trader is the simplicity of compliance and minimal formalities.
However, the sole trader is personally liable for all the debts and obligations of the business.
| - Simple and easy to set up and operate.
- Complete control over the business.
- Few formalities and minimal compliance requirements.
- No obligation to publicly disclose information. Direct access to profits.
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Company Limited by Shares:
A company limited by shares is a separate legal entity owned by its shareholders.
The liability of the shareholders is limited to the amount unpaid on their shares.
This form of business vehicle offers limited liability and allows for the flexibility of management structure. However, there is a higher level of public disclosure required.
| - Limited liability for shareholders.
- Protecting personal assets.
- Separate legal entity, distinct from its owners.
- Ability to raise capital by issuing shares.
- Perpetual existence, not dependent on the owners.
- Enhanced credibility and potential for growth.
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Unincorporated Associations:
These are groups of individuals who come together for a common purpose, such as social clubs, sports teams, or community organisations.
They are not separate legal entities and do not have limited liability. | - Easy and inexpensive to set up and operate. Flexibility in decision-making and governance structure.
- Members have direct control and influence over the association's activities.
- Minimal legal and regulatory requirements.
- Can be suitable for small-scale, informal organisations or community groups.
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Community Interest Companies (CICs):
CICs are a special type of company designed for social enterprises.
They operate for the benefit of the community and have specific regulations and reporting requirements. | - Legal structure specifically designed for social enterprises.
- Ability to generate income while pursuing social or community objectives.
- Limited liability for members, protecting personal assets.
- Enhanced credibility and transparency through CIC reporting requirements.
- Access to funding and support specifically available for social enterprises.
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Unregistered Companies:
Unregistered companies are businesses that have not been formally registered with Companies House.
They do not have the same legal status and protections as registered companies. | - Quick and simple to set up, as there is no formal registration process.
- Flexibility in decision-making and management structure.
- Minimal legal and regulatory requirements.
- Privacy, as there is no public disclosure of company information.
- Suitable for small-scale, low-risk businesses or informal arrangements.
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Unlimited Companies:
Unlimited companies are similar to limited companies, but their members have unlimited liability for the company's debts and obligations.
They are less common and often used for specific purposes. | - Flexibility in decision-making and management structure.
- No limit on the number of members or shareholders.
- Potential for tax advantages, as there may be more flexibility in profit distribution.
- Perpetual existence, not dependent on the owners. Suitable for specific purposes, such as professional partnerships or niche industries.
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Charitable Incorporated Organisations (CIOs):
CIOs are a specific type of legal structure for charities in the UK.
They provide limited liability for their members and have specific regulations and reporting requirements. | - Legal recognition as a separate legal entity, providing limited liability for its members. Exclusively designed for charitable purposes, allowing organisations to pursue their charitable objectives effectively.
- Simplified governance structure, with a single legal entity combining the functions of a charity and a corporate body.
- Enhanced credibility and transparency through regulatory oversight by the Charity Commission. Ability to enter into contracts, own property, and sue or be sued in its own name.
- Perpetual existence, not dependent on the members.
- Access to specific funding and support available for charitable organisations.
- Flexibility in decision-making and management structure, allowing for effective governance and accountability.
- Ability to attract and retain donors, as CIOs are recognised as dedicated charitable entities. Tax advantages, including eligibility for charitable tax exemptions and reliefs
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Co-operative and Community Benefit Societies:
These are organisations that are owned and controlled by their members, who may be customers, employees, or other stakeholders.
They operate for the benefit of their members or the wider community. | - Owned and controlled by members, ensuring democratic decision-making.
- Ability to generate income while benefiting the community.
- Limited liability for members, protecting personal assets.
- Access to funding and support specifically available for community benefit societies.
- Enhanced credibility and trust within the community.
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Company Limited by Guarantee:
A company limited by guarantee is often used by not-for-profit organisations.
The liability of its members is limited to the amount they undertake to contribute in the event of winding up the company.
This form of business vehicle is subject to public disclosure requirements.
| - Limited liability for members, protecting personal assets.
- Suitable for not-for-profit organisations and charities.
- Ability to attract members who are committed to the organisation's objectives.
- Perpetual existence, not dependent on the members.
- Enhanced credibility and potential for funding.
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Partnerships: T
There are three different forms of partnerships in the UK: a. General Partnership.
b. Limited Liability Partnership (LLP).
c. Limited Partnership (LP).
| See below advantages of each partnership type. |
General Partnerships: - Formation: General partnerships are formed when two or more individuals or entities come together to carry on a business for profit.
- Partnership Agreement: While not legally required, it is advisable for general partnerships to have a partnership agreement that outlines the rights, responsibilities, and profit-sharing arrangements among the partners.
- Unlimited Liability: Each partner in a general partnership has unlimited personal liability for the debts and obligations of the partnership. This means that personal assets can be used to satisfy business debts.
- Joint Decision-Making: Partners have equal decision-making authority and are jointly responsible for the management and operation of the partnership.
- Shared Profits and Losses: Partners share in the profits and losses of the partnership according to the agreed-upon terms in the partnership agreement.
- Taxation: General partnerships are treated as pass-through entities for tax purposes. This means that the partnership itself does not pay taxes, but the partners report their share of the partnership's income or losses on their individual tax returns.
- No Legal Entity: General partnerships do not have a separate legal entity from the partners. The partnership is not considered a distinct legal entity, and partners are personally liable for the partnership's obligations.
- Dissolution: General partnerships can be dissolved by mutual agreement, expiration of a fixed term, or the withdrawal or death of a partner. Dissolution may require the winding up of the partnership's affairs and the distribution of assets.
- Informal Structure: General partnerships have a relatively simple and informal structure, with fewer legal formalities and regulatory requirements compared to other business entities.
- Commonly Used for Small Businesses: General partnerships are often chosen by small businesses, professional practices, and family-owned businesses due to their simplicity and ease of formation.
| - Flexibility in management structure and decision-making.
- Shared responsibilities and resources.
- Ability to combine complementary skills and expertise.
- Few formalities and minimal compliance requirements.
- Potential for tax advantages and shared profits.
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Limited Liability Partnerships (LLPs): - Separate Legal Entity: LLPs are distinct legal entities separate from their members (partners).
- Limited Liability: Members of an LLP have limited liability for the debts and obligations of the partnership. Their personal assets are generally protected from business liabilities.
- Flexibility in Management: LLPs have flexibility in structuring their management and decision-making processes. They can choose to have designated members responsible for administrative duties.
- Perpetual Succession: LLPs have perpetual existence, meaning they can continue to operate even if there are changes in membership.
- Partnership Agreement: LLPs typically have a partnership agreement that outlines the rights, responsibilities, and profit-sharing arrangements among the members.
- Public Disclosure: LLPs are required to make certain public disclosures, such as filing annual accounts and notifying changes in registered information, with Companies House.
- Taxation: LLPs are treated as transparent for tax purposes, meaning the profits and losses are generally attributed to the individual members rather than the partnership itself.
- Professional Services: LLPs are commonly used by professional service firms, such as law firms and accounting firms, due to the limited liability protection and flexibility in management.
- Regulatory Oversight: LLPs are regulated by the Limited Liability Partnerships Act 2000 and are subject to certain statutory requirements and reporting obligations.
- Limited Partner Liability: In an LLP, partners are not personally liable for the negligence or misconduct of other partners, except in cases of personal wrongdoing or breach of duty.
| - Limited liability for members, protecting personal assets.
- Flexibility in management structure and decision-making.
- Separate legal entity, distinct from its members.
- Ability to attract and retain talent through partnership structure. Potential for tax advantages and shared profits.
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Limited Partnerships (LPs): - Two Types of Partners: LPs consist of at least one general partner and at least one limited partner.
- General Partner: The general partner(s) has unlimited personal liability for the debts and obligations of the partnership. They have management control and are responsible for the day-to-day operations.
- Limited Partner: The limited partner(s) has limited liability, meaning their personal assets are generally protected from business liabilities. Limited partners typically contribute capital to the partnership but have limited involvement in management decisions.
- Limited Liability Protection: Limited partners are not personally liable for the partnership's debts beyond their capital contributions, as long as they do not participate in the management of the partnership.
- Partnership Agreement: LPs typically have a partnership agreement that outlines the rights, responsibilities, and profit-sharing arrangements among the partners.
- Perpetual Succession: LPs have perpetual existence, meaning they can continue to operate even if there are changes in partnership composition.
- Public Disclosure: LPs are required to make certain public disclosures, such as filing annual accounts and notifying changes in registered information, with Companies House.
- Taxation: LPs are generally treated as transparent for tax purposes, meaning the profits and losses are attributed to the individual partners rather than the partnership itself.
- Limited Partner Liability: Limited partners are shielded from personal liability for the partnership's debts and obligations, as long as they do not participate in management decisions. However, if a limited partner becomes actively involved in management, they may lose their limited liability protection.
- Commonly Used for Investment Ventures: LPs are often used as investment vehicles, allowing investors to participate in a partnership while limiting their liability to the extent of their capital contributions.
| - Limited liability for limited partners, protecting personal assets.
- Flexibility in management structure and decision-making.
- Ability to attract investors as limited partners. General partners have control and management authority.
- Potential for tax advantages and shared profits.
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