Legal identities


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Legal identities

  2. 2. CHOICE OF BUSINESS ORGANISATION SMALL BUSINESS Sole Ownership Shared Ownership Sole Trader Limited Company Partnership Limited Company Cooperative
  3. 3. Limited Company
  4. 4. Limited Company Responsibilities  Shareholders Responsibilities.  Directories Responsibilities.  To act honestly, and in the company’s best interests.  To have regard for the interests of employees as well as shareholders.  To comply with the requirements of the companies Act.
  5. 5. Limited Company The Memorandum & Article of Association  Memorandum of Association.  Name of the Company.  Location of the registered office.  The objects of the company.  The limited liability of the shareholders.  The share capital and structure.  The name of signatories.  Articles of Association.  Formation of a Limited Company.
  6. 6.  Limited liability for shareholders.  Some Formalized structures (e.g. directors meetings) make management clearer.  Income tax paid only on salaries drawn; higher rates of personal tax can be avoided when profits are retained.  No limited to contributions made to a pension scheme with tax relief. ADVANTAGES Limited Company
  7. 7.  Finance easier to raise externally especially from equity.  Easier to widen ownership base.  Existence not threaten by death or personal bankruptcy of one of owners.  Possibly higher perceived status. ADVANTAGES Limited Company
  8. 8.  More time consuming & expensive to setup.  complicated & time consuming to conform to requirements of Companies Act.  Loss of confidentiality as some records are publicly filed.  Audit & accounting costs higher.  Higher national insurance contributors. DISADVANTAGES Limited Company
  9. 9.  Double tax when company pays corporation tax on profits & capital gains, and shareholders are personally taxed on dividends.  As employees, directors have worse cash flow of taxes under PAYE than self- employed.  Limited liability reduced.  Directors can be held personally liable if company trades while insolvent. DISADVANTAGES Limited Company
  10. 10. SOLE TRADER
  11. 11.  Legal Status  Setting Up & Record keeping. SOLE TRADER
  12. 12.  Straight forward & easy to setup.  Make all the decisions & keep all the profits.  No audit of accounts required legally.  No public disclosures of records.  Business losses can be offset against other income.  Self-employment defers income tax & reduces national insurance contributions. SOLE TRADER ADVANTAGES
  13. 13.  Unlimited Liability.  No additional funds.  Transfer of ownership less flexible.  Possible status problems perceived by third parties.  All profits taxed as personal income.  Self-employed national insurance entitlements have less benefits.  Tax relief on pension contributions restricted. SOLE TRADER DISADVANTAGES
  15. 15. Partnership Act 1890…  All partners have an equal vote in how the business should be run;  All partners have invested equally in the business;  All partners have an equal share of profits;  Partners will not receive any salary;  Partners will not receive interest on their capital invested. PARTNERSHIP
  16. 16. The Partnership Agreement  Details of Partners.  Duration of Partnership.  Capital contributed by partners.  Calculation & division of profits.  Management & control of business.  Dissolution. PARTNERSHIP
  17. 17. PARTNERSHIP  Partners’ Responsibilities.
  18. 18.  Easy to setup.  Access to the experience of other partners.  No audit of accounts legally required.  Confidentiality is maintained.  Losses from the business can be offset against other income.  Can be relatively easily transferred to a limited company.  Benefits of self-employment. PARTNERSHIP ADVANTAGES
  19. 19.  Liable for debts.  Partners estate can still be liable for their after death.  Death, bankruptcy retirement dissolves partnership.  Less flexibility in transferring ownership.  High Degree of mutual trust required.  Profits taxed as income.  Self-employed national insurance entitlements have less benefits.  Tax relief on pension contributions restricted. PARTNERSHIP DISADVANTAGES
  21. 21. CO-OPERATIVES Industrial & Provident Societies Act 1965-75  Controlled by members.  Membership is not restricted.  Each member has equal vote.  Surpluses & profits are shared between members.  Share capital remains at its original value.  Interest is limited.
  22. 22. CO-OPERATIVES  Background.  Types of co-operative.  Endowed Co-operatives.  Defensive Co-operatives.  Job-creation Co-operatives.  Alternative Co-operatives.
  23. 23.  High level of commitment.  Increased motivation.  Equal sharing.  Higher satisfaction from work. CO-OPERATIVES ADVANTAGES
  24. 24.  Lack of management.  Insufficient Finance.  Difficulties to access market place.  Difficult economic conditions.  Decision making can become confused.  Finding members is difficult.  Low survival rate. CO-OPERATIVES DISADVANTAGES
  25. 25. Checklist for choosing appropriate formChecklist for choosing appropriate form Categories Liabilities Records & Accounts Setting Up Company Liability Limited, but personal guarantees & directors’ obligations can reduce limitations. Legal accounting & audit requirements. Account filed open to inspection. Formalities of registration, although can buy off-the-peg. Sole trader All assets liable including those not involve in the business. No strict accounting or audit requirements. Records not available for public inspection. No formalities except registering as self- employed. Partnership Liabilities extends to business debts of other partners. As for sole trader. As for sole trader, except partnership agreement strongly advised to prevent problems, specially of dissolution.
  26. 26. Checklist for choosing appropriate formChecklist for choosing appropriate form Categories Raising Money Selling Up Status Tax, National Insurance & Pensions Company Wide choice, including further equity investments. Flexible, as can sell part of all of shares. Possibly higher perceived status. Employee status PAYE, high national insurance, but full benefits. unlimited co. contributions on pension. Corp. tax on co. profits. Losses retained in co. Sole trader Operations limited to overdraft or loan. Can only sell assets; difficult if selling part of business. Possibly lower perceived status. Insurance cheaper but fewer benefits. Tax-deductible pension contributions restricted. Losses can be offset against tax on other income. Partnership Overdrafts, loans or new partners with money. As for sole trader. As for sole trader. As for sole trader.
  27. 27. THANK YOU