The legal structure a business chooses is fundamental to the way it operates. This legal framework determines who shares in the profits and losses, how tax is paid, where legal liabilities rests. It also determines the nature of a business' relationships with business associates, investors, creditors and employees.
There are three options for a business' legal structure:
(1) Sole TraderAn individual who runs an unincorporated business on his or her own. Sometimes otherwise known as a "sole proprietor" or (in the case of professional services) a"sole practitioner".
The sole trader structure is the most straight-forward option. The individual is taxed under the Inland Revenue's Self-Assessment system, with income tax calculated after deduction for legitimate business expenses and personal allowances. A sole trader is personally liable for the debts of the business, but also owns all the profits.
(2) PartnershipA partnership is an association of two or more people formed for the purpose of carrying on a business. Partnerships are governed by the Partnership Act (1890). Unlike an incorporated company (see below), a partnership does not have a "legal personality" of its own. Therefore the Partners are liable for any debts of the business.
Partner liability can take several forms. General Partners (the usual situation) are fully liable for business debts. Limited Partners are limited to the amount of investment they have made in the Partnership. Nominal Partners also sometimes exist. These are people who allow their names top be used for the benefit of the partnership, usually for remuneration, but they do not get a share of the partnership profits.
The operation of a partnership is usually governed by a "Partnership Agreement". The specific terms of this agreement are determined by the partners themselves, covering issues such as:
- Profit-sharing - normally, partners share equally in the profits;- Entitlement to receive salaries and other benefits in kind (e.g. cars, health insurance)- Interest on capital (the amount invested in the partnership)- Arrangements for the introduction of new partners- Arrangements for retiring partners- What happens when the partnership is dissolved
(3) Incorporated CompanyIncorporating business activities into a company confers life on the business as a "separate legal person". Profits and losses are the company's and it has its own debts and obligations. The company continues despite the resignation, death or bankruptcy of management or shareholders. A company also offers the best vehicle for expansion and the provision of outside investors.
There are four main types of company:
(1) Private company limited by shares - members' liability is limited to the amount unpaid on shares they hold
(2) Private company limited by guarantee - members' liability is limited to the amount they have agreed to contribute to the company's assets if it is wound up.
(3) Private unlimited company - there is no limit to the members' liability
(4) Public limited company (PLC) - the company's shares may be offered for sale to the general public and members' liability is limited to the amount unpaid on shares held by them.
Specific arrangements are required for public limited companies. The company must have a name ending with the initials "plc" and have an authorised share capital of at least £50,000 of which at least £12,5000 must be paid up. The company's "Memorandum of Association" must comply with the format in Table F of the Companies Regulations (1985). The company may offer shares and securities to the public. In return for this right to issue shares publicly, a public limited company is subject to much stricter regulation, particularly in relation to the publication of financial information.
The vast majority of companies incorporated in the UK and in other major industrialised countries are private companies limited by shares - "private limited liability companies".
The Office of the Registrar of Companies" (based in Cardiff) maintains a record of all UK private and public companies, their shareholders, directors and financial information. All this information has to be provided by Companies by law and is available to any member of the public for a small charge. You can search the Companies House databases at http://ws2.companieshouse.gov.uk/index.shtml
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Business knowledge
Nhãn: Business
Advantages of a limited company
Whilst many businesses prefer to trade as a sole trader or a partnership, nearly all significant businesses operate as an incorporated company. The main advantages of incorporation via a limited company are summarised below:
Separate Legal Identity
A limited company has a legal existence separate from management and its members (the shareholders)
Members' liability is limited ("limited liability")
The protection given by limited liability is perhaps the most important advantage of incorporation. The members' only liability is for the amount unpaid on their shares. Since most private companies issue shares as "fully paid", if things go wrong, a members' only loss is the value of the shares and any loans made to the company. Personal assets are not put at risk. The protection of limited liability does not, however, apply to fraud. Company directors have a legal duty not to incur liabilities in their companies which they have reason to believe the company may not be able to pay. If creditors lose money through director fraud, the directors' personal liability is without limit.
Protection of Company Name
The choice of company names is restricted and, providing a chosen name complies with the rules, no-one else can use it. The only protection for sole traders and partnerships is trademark legislation.
Continuity
Once formed, a company has everlasting life. Directors, management and employees act as agent of the company. If they leave, retire, die - the company remains in existence. A company can only be terminated by winding up, liquidation or other order of the courts or Registrar of Companies.
New Shareholders and Investors can be easily introduced
The issue, transfer or sale of shares is a relatively straightforward process - although existing shareholders are protected via their "preemption" rights and by company legislation that seeks to protect the interests of minority investors.
The process of lending to a company is also easier than with other business forms. The lending bank may be able to secure its loan against certain assets of the business (a "floating charge") or against the business as a whole ("fixed charge".
Better Pension Schemes
Approved company pension schemes usually provide better benefits than those paid under contracts to self-employed sole trading businesses.
Taxation
Sole traders and partnerships pay income tax. Companies pay Corporation tax on their taxable profits. There is a wider range of allowances and tax-deductible costs that can be offset against a company's profits. In addition, the current level of Corporation Tax is lower than income tax rates. 0 nhận xét
Whilst many businesses prefer to trade as a sole trader or a partnership, nearly all significant businesses operate as an incorporated company. The main advantages of incorporation via a limited company are summarised below:
Separate Legal Identity
A limited company has a legal existence separate from management and its members (the shareholders)
Members' liability is limited ("limited liability")
The protection given by limited liability is perhaps the most important advantage of incorporation. The members' only liability is for the amount unpaid on their shares. Since most private companies issue shares as "fully paid", if things go wrong, a members' only loss is the value of the shares and any loans made to the company. Personal assets are not put at risk. The protection of limited liability does not, however, apply to fraud. Company directors have a legal duty not to incur liabilities in their companies which they have reason to believe the company may not be able to pay. If creditors lose money through director fraud, the directors' personal liability is without limit.
Protection of Company Name
The choice of company names is restricted and, providing a chosen name complies with the rules, no-one else can use it. The only protection for sole traders and partnerships is trademark legislation.
Continuity
Once formed, a company has everlasting life. Directors, management and employees act as agent of the company. If they leave, retire, die - the company remains in existence. A company can only be terminated by winding up, liquidation or other order of the courts or Registrar of Companies.
New Shareholders and Investors can be easily introduced
The issue, transfer or sale of shares is a relatively straightforward process - although existing shareholders are protected via their "preemption" rights and by company legislation that seeks to protect the interests of minority investors.
The process of lending to a company is also easier than with other business forms. The lending bank may be able to secure its loan against certain assets of the business (a "floating charge") or against the business as a whole ("fixed charge".
Better Pension Schemes
Approved company pension schemes usually provide better benefits than those paid under contracts to self-employed sole trading businesses.
Taxation
Sole traders and partnerships pay income tax. Companies pay Corporation tax on their taxable profits. There is a wider range of allowances and tax-deductible costs that can be offset against a company's profits. In addition, the current level of Corporation Tax is lower than income tax rates. 0 nhận xét
business angel finance
Nhãn: Business
Business owners often report that company finance of £10,000 to £250,000 can be very difficult to obtain - even from traditional sources such as banks and venture capitalists. Banks generally require security and most venture capital firms are not interested in financing such small amounts. In these circumstances, companies often have to turn to "Business Angels". Business angels are wealthy, entrepreneurial individuals who provide capital in return for a proportion of the company equity. They take a high personal risk in the expectation of owning part of a growing and successful business. Businesses Suitable for Angel Investment Businesses are unlikely to be suitable for investment by a business angel unless certain conditions are fulfilled. (1) The business needs to raise a reasonably modest amount (typically between £10,000 to £250,000,and is willing to sell a shareholding in return for financing. Equity finance of over £250,000 is usually provided by venture capital firms rather than business angels. The exceptions are when several business angels invest together in a syndicate or when business angels co-invest alongside venture capital funds. The sums raised can easily exceed £250,000. Raising finance in the form of equity (shares) strengthens the business' balance sheet. Banks (or other lenders) may then be willing to provide additional debt finance. (2) The owners and managers of the business are willing to develop a personal relationship with a business angel. This is important. Typically, business angels want hands-on involvement in the management of their investment, without necessarily exercising day-to-day control. This relationship can be a positive one for the business. A business angel with the right skills can strengthen a business by, for example, offering marketing and sales experience. (3) The business can, and is prepared to offer the business angel the possibility of a high return (usually an expected average annual return of at least 20%–30% per annum). Most of this return will be realised in the form of capital gains over a period of several years. (4) The business can demonstrate a strong understanding of its products and markets. Some business angels specialise by providing "expansion finance" for businesses with a proven track record, or in particular sectors. This enables an already successful business to grow faster. Business angels are also a significant source of start-up and early-stage capital for companies without a track record. A business plan based on convincing market research is essential. (5) The business has an experienced and professional management team - as a minimum with strong product and sales skills. If there are weaknesses in the existing management team, a business angel can often provide the missing skills or introduce the business to new management. (6) The business can offer the business angel the possibility of an ‘exit’. Even if the business angel has no plans to realise the investment by any particular date, the angel will want the option to be available. The most common exits are: - A trade sale of the business to another company.- Repurchase of the business angel’s shares by the company.- Purchase of the business angel’s shares by the company’s directors or another investor. Finding an angel Many contacts are made informally.For example: personal friends and family; wealthy business contacts; major suppliers and clients of the business. Investors can also be found by approaching formal angel networking organisations. Many of the most active business angels use these networks to find out about interesting investment opportunities.
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