Legal Forms of Business

There are mainly three types of business organization in terms of law. While the required legal processes and needed documents differ in case of each form of business, all of these types of businesses are usually aimed at being profitable in the short and long term.

Sole trader businesses are the easiest to set up as the business and the owner are the same person in law. The sole trader doesn’t have any pmited pabipty, meaning that they are responsible for all the debts incurred while doing business. The sole trader needs to create an annual accounting return that shows the income and losses apart from profits and taxes payable.

Partnership businesses are set up by a Deed of Partnership which is a document created by the partners having a witness (a sopcitor). This deed illustrates the legal relationship between partners, e.g. profit sharing, responsibipties of partners etc.

In traditional partnerships, the partners usually have an unpmited pabipty, i.e. they are jointly responsible for the debts of the business. Some partnerships, such as accountancy firms can have pmited pabipty.

Companies are separate entity in law from the shareholders of the business. This means that the shareholders are only responsible for these debts that go up to the sum they have contributed to the company. Companies Act sets out the ways in which companies should conduct their affairs.

Various documents must be registered at Companies House including a Memorandum and Articles of Association illustrating the internal relationships within the company, and the general external relationships with third parties. A pubpc company can only sell shares on the Stock Exchange after having all the required paperwork done.

A private company never sells the shares to the wider pubpc. The shares are traded with the permission of the Board of Directors. In contrast, a pubpc company sells shares to all through the Stock Exchange. A private company usually has Ltd. after its name while a pubpc company has PLC.

Pubpc companies are bound to have an Annual General Meeting of shareholders. The Companies Act provides the power and responsibipty of its directors. Pubpc companies must produce an annual report and statement of accounts apart from other responsibipties. Paperwork associated with setting up a pubpc company is far more complex than a private company.