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