1. COMPANY LAW
UNIT 18

2. Lead-in
Greg Bradley is a UK solicitor who specialises in setting up businesses. He has a client who needs advice on the most appropriate legal structure for the business he intends to start.
What information do you think Greg Bradley needs from his client before he can explain more about different types of business structures in the UK and select the most advantageous one for the client?

3. Lead-in
Which characteristics of a business entity do you expect to interest a client most when setting up a business? Put the following in order of importance from 1 to 8.
__liability
__ ownership structure
__ management
__ registration procedure (costs, paperwork ...)
__ distribution of profits
__ keeping records and accounts
__ minimum amount of capital
__ tax responsibilities (income /
corporation tax, VAT ...)

4. a. Sole trader, b. ‘ordinary’ partnership,c
a.Sole trader, b.‘ordinary’ partnership,c. limited liability partnership,d. limited company, e.public limited company, f.private limited company 1.
the simplest and most common form of business ownership which does not need to comply with complicated rules and regulations apart from those referring to tax.
Since it is owned and managed by one person, who has unlimited control over the business, it is the most suitable type of business entity for operating a small-profit business such as a self-employed photographer, hairdresser, computer consultant
.... It differs from incorporated businesses because its legal existence is not separate from its owner’s, that is, it is a natural person.

5. a. Sole trader, b. ‘ordinary’ partnership,c
a.Sole trader, b.‘ordinary’ partnership,c. limited liability partnership,d. limited company, e.public limited company, f.private limited company 1.
The owner keeps all of the profits of the business but, by having unlimited liability, he/she is also personally responsible for all of its debts and losses.
Therefore, if the business fails, any business debt will be met from the owner’s personal assets.
Keeping accounts and records showing income and expenses is rather simple. The profits are taxed as income by HM Revenue&Customs, and the owner needs to send a self-assessment tax return each year. There may be a few or no employees.

6. a. Sole trader, b. ‘ordinary’ partnership,c
a.Sole trader, b.‘ordinary’ partnership,c. limited liability partnership,d. limited company, e.public limited company, f.private limited company 2.
a common structure for small businesses formed when two or more individuals or legal entities become co-owners of a business venture.
This way more capital can be contributed and skills and expertise, as well as the workload, can be shared.
The partners manage the business and personally share (equally or as specified in the partnership agreement) responsibilities and the business’s profits

7. a. Sole trader, b. ‘ordinary’ partnership,c
a.Sole trader, b.‘ordinary’ partnership,c. limited liability partnership,d. limited company, e.public limited company, f.private limited company 2.
Since a partnership is not considered to be a separate legal entity from its owners, partners are unlimitedly liable for all debts and obligations and the business may cease to exist when one of the partners dies.
The registration procedure is rather straightforward and requires registering the name of the business with HM Revenue&Customs.

8. a. Sole trader, b. ‘ordinary’ partnership,c
a.Sole trader, b.‘ordinary’ partnership,c. limited liability partnership,d. limited company, e.public limited company, f.private limited company 2.
Based on an annual self-assessment tax return each partner pays income tax on his/her share of the profits. If its takings are expected to be more than £82,000 a year, a partnership needs to register for VAT.
Partnerships are usually set up by drawing up partnership agreements (or deeds of partnership) – binding contracts between the partners setting out the important details such as the names of the individual partners, the purpose for which the partnership is established, the principal place of business, the capital each partner invests, the liability and profit share of each partner, and steps outlining what happens if the partnership is dissolved....
Setting up partnerships is particularly common in professional services such as accountants, doctors, dentists, solicitors.

9. a. Sole trader, b. ‘ordinary’ partnership,c
a.Sole trader, b.‘ordinary’ partnership,c. limited liability partnership,d. limited company, e.public limited company, f.private limited company 3.
a form of partnership whose legal identity is separate from its members.
There is limited personal liability for individual partners, whose responsibilities, however, differ.
There are general partners who are personally liable for all the partnership’s debts and manage the business and limited partners who are only liable up to the amount they initially invest.
A sleeping partner* may contribute capital to the partnership but does not take part in the management of the business. He/she receives a share of the partnership profits.

10. a. Sole trader, b. ‘ordinary’ partnership,c
a.Sole trader, b.‘ordinary’ partnership,c. limited liability partnership,d. limited company, e.public limited company, f.private limited company 3.
This type of partnership is considered an incorporated business and must be registered with Companies House (the companies registry).
Each partner is responsible for his/her own taxes and filing of self-assessment forms. As with an ordinary partnership it must be registered for VAT if the business’s takings exceed £82,000 a year.

11. a. Sole trader, b. ‘ordinary’ partnership,c
a.Sole trader, b.‘ordinary’ partnership,c. limited liability partnership,d. limited company, e.public limited company, f.private limited company 4.
an artificial or legal person that is separate in law from its owners and has its own separate personality or legal entity.
This allows the company to sue or own assets in its own name and have perpetual life despite changes in ownership.
The ownership of this type of business entity is divided up into equal parts called shares and owned by members or shareholders.
The shareholders’ responsibilities for the company’s debts are limited to the value of shares that they own/hold. Such limited liability is the major advantage of this type of business legal structure

12. a. Sole trader, b. ‘ordinary’ partnership,c
a.Sole trader, b.‘ordinary’ partnership,c. limited liability partnership,d. limited company, e.public limited company, f.private limited company 4.
The business is run by the board of directors whose members do not necessarily have to be the owners.
Company directors are personally responsible for the debts of the business only if they have broken the law.
The main documents required for incorporation are the articles of association, prescribing regulations for the internal management of the company such as shareholders’ annual general meetings (AGMs), the board of directors, corporate contracts and loans and the memorandum of association, comprising information about the company and its authorised capital.

13. a. Sole trader, b. ‘ordinary’ partnership,c
a.Sole trader, b.‘ordinary’ partnership,c. limited liability partnership,d. limited company, e.public limited company, f.private limited company 4.
Every financial year each company has to submit its financial accounts (profit-and-loss account and balance sheet) to Companies House, and an annual tax return giving details of its share capital and shareholders to HM Revenue&Customs.
The company is liable for corporation tax, however directors are obliged to fill in a self-assessment tax return and pay income tax.
Registration for VAT is necessary in the same case as a partnership.
Limited companies are suitable for high-risk projects.
A limited company may not be formed for an unlawful purpose.

14. a. Sole trader, b. ‘ordinary’ partnership,c
a.Sole trader, b.‘ordinary’ partnership,c. limited liability partnership,d. limited company, e.public limited company, f.private limited company 5.
cannot offer its shares to the general public for sale.
It is typically smaller than other companies and may have just one shareholder (a single-member company).
There is no minimum share capital requirement.
It must be registered (incorporated) with Companies House and is managed through its managing director or the board of directors.
Each company must appoint a professionally qualified company secretary.
The company may employ only one or two persons.

15. a. Sole trader, b. ‘ordinary’ partnership,c
a.Sole trader, b.‘ordinary’ partnership,c. limited liability partnership,d. limited company, e.public limited company, f.private limited company
4 A
cannot offer its shares to the general public for sale. It is typically smaller than other companies and may have just one shareholder (a single-member company). There is no minimum share capital requirement. It must be registered (incorporated) with Companies House and is managed through its managing director or the board of directors. Each company must appoint a professionally qualified company secretary. The company may employ only one or two persons.

16. a. Sole trader, b. ‘ordinary’ partnership,c
a.Sole trader, b.‘ordinary’ partnership,c. limited liability partnership,d. limited company, e.public limited company, f.private limited company
4 B
can raise additional capital by issuing shares to the general public on a stock exchange market. That way large amounts of capital can be raised in a short time. However, if large quantities of shares are purchased (as in a takeover bid) the original shareholders, the founders of the company, may lose control of the business. The company must have at least two shareholders whose liability is limited to their contributions. The management of the company is carried out by the board of directors and a qualified company secretary. The shareholders have no power to participate in the management. The minimum authorised share capital required by law is £50,000.

17. Fill in the following table
Type of business
Registration
Ownership
Management
Liability
Taxation
Sole trader
Partnership
Limited liability partnership
Private limited company
Public limited company

18. Complete the definitions: shareholder, business venture, self-assessment form, corporation tax, co-owner, income tax, management, incorporation, liability, asset, stock exchange, artificial person, takeover bid
A ____________________is a form that a sole trader or a partner needs to complete and send to the tax authority. It contains all financial details and a calculation of the amount of tax that must be paid.
The amount of income that is paid in tax is called ________________ .
_________ is the way in which a business is run on a day-to-day basis.
_____________________ is the condition of being actually or potentially subject to a legal obligation.

19. Complete the definitions: shareholder, business venture, self-assessment form, corporation tax, co-owner, income tax, management, incorporation, liability, asset, stock exchange, artificial person, takeover bid
Any property owned by a person or firm that has financial value is called _______________.
An _______________________ is an entity other than a natural person (human being) created by law and recognized as a legal entity having distinct identity, legal personality, and duties and rights. (juristic, juridical or legal person)
A _____________________ is an individual, or, organisation that owns one or more shares in a company, and in whose name a share certificate is issued (US stockholder)
An individual or group that shares ownership with another individual or group is referred to as a ______.

20. Complete the definitions: shareholder, business venture, self-assessment form, corporation tax, co-owner, income tax, management, incorporation, liability, asset, stock exchange, artificial person, takeover bid
_____________________ is the process of legally declaring a corporate entity as separate from its owners.
_____________________ is the amount of money payable on a company’s income (eg. from investment in shares) or gains (eg. from sale of assets) at the statutory rate. It must be paid by a company (US corporation) based on the amount of profit the company has made.

21. Complete the definitions: shareholder, business venture, self-assessment form, corporation tax, co-owner, income tax, management, incorporation, liability, asset, stock exchange, artificial person, takeover bid
________________________ is an organized financial market where shares and other securities are bought and sold.
A _______________ is a business entity developed with the intent to make financial profits.
An offer or an attempt to take control of a company by buying enough of its shares is called __________________________.

22. Study the text once again and find the advantages and disadvantages of each business structure. Fill in the table.
Type of business
Advantage
Disadvantage
Sole trader
Partnership
Limited liability partnership
Private limited company
Public limited company

23. Fill in the gaps: formed, registered, incur, purchaser, registration, investors, certified, drafted, business entity, incorporation
A shelf company or off-the-shelf company is a company which has been legally _________________ with Companies House at an earlier date and is available for a _________________ who wants to bypass the lengthy registration or _________________ process. Although the majority of _________________who intend to start a limited __________________decide to set-up a brand new company, that is, one which does not exist until the time they choose to register it themselves, shelf companies might be very popular in specific situations.

24. Fill in the gaps: formed, registered, incur, purchaser, registration, investors, certified, drafted, business entity, incorporation
They are usually _________________ and sold by accounting or law firms. Since they _________________ some additional costs, buying such companies is generally more expensive than registering a new entity.
Making use of the benefits of pre-registered companies is a very simple process. On the market there is a large number of ready- made company names with suitably __________________ business documents ready for immediate ___________________ in a purchaser's name. Each company is ______________to have not been traded, and to have the ability to trade in any business area preferred. Before listing, all company names must be verifird with Companies House, and must comply with governing legislation.

25. Decide which US entity 1-5 is described
1. S corporation
2. Sole proprietorship
3. General partnership
4. C corporation
5. Limited partnership

26. Fill in the table (p. 182-183: Entity Liability of owners Capital
Management
Unlimited personal liability
Capital is contributed by sole proprietor
Business is managed by sole proprietor
Unlimited personal liability of partners
All partners contribute money or services and share profits and losses
All partners have equal management right (unless they agree otherwise)
Unlimited personal liability of general partner(s); no personal liability of limited partner(s)
General partner(s) manage(s) the business
Shareholders liable to the extent of their investment
Capital contributed by shareholders; usually no minimum share capital
Managing director or board of directors manage the business
Liability limited to shareholders contributions
Share capital is raised through issuance of shares to the public
Business is managed by board of directors