Legal Structures Mahbuba Begum

Introduction A legal structure of a business is the way a person decides to set up their business and decides what kind of business they are and what the sell for example: Sole trader Partnerships Private limited company (LTD) Public Limited Company (PLC) Not-for-profit - social enterprises Franchises

Sole Trader e.g. hairdressing, newsagents, market traders etc A sole trader is a person who owns a business by themselves. Sole traders usually employ people however these employees will not be involved in any of the finance. The owner would have to get all the loans and do all the accounting by his/herself A sole trader has unlimited liability* for his/her debts. It is seen as an unincorporated business which means that legally there is no difference between the owner and the business. *Unlimited liability- The owner can be held personally accountable for a business's debt. They may lose personal possessions to pay back the debt. Under unlimited liability, a person can be liable for an unlimited amount of money, even beyond his or her original investment

Advantages and Disadvantages Easy to set up as the firms are usually quite small. They will have difficulty taking time off or sick leave as there is no one else in charge. The owner gets to keep all profit. Work long hours as there are no partners to share the responsibility . Usually a small start up capital is needed (so less debt) Developing the business is also limited by the amount of capital personally available. The owner is fully in charge. Risk of unlimited liability, they can lose personal belongings if there are any debts

Partnerships e.g. doctor's surgeries, veterinarians, accountants, solicitors and dentists. A partnership is when a business is formed with at least 2 people. Partners carefully and draw up an agreement on the responsibilities and rights of each partner (known as a Deed of Partnership or The Articles of Partnership). Like a sole trader they have unlimited liability. The only exception is in a Limited Partnership. This is where a partnership may wish to raise additional finance, but does not wish to take on any new active partners.

Advantages and Disadvantages The responsibility is shared so there is less workload. Arguments between the business partners over different things can occur. More people are contributing to the start up capital so the business will be more able to develop. If there is an uneven amount of profit distribution there can be problems if one partner feels like they are putting in more effort than the other partner. There is less time pressure on each individual partner. Like a sole trader there is also risk of unlimited liability. There is someone t discuss business problems with. They get taxed quite high.

Private Limited Company (LTD) e.g. Warburton's, New Look Retailers. These are closely held business usually by family, friends, and relatives Private companies may issue stock and have shareholders. However, their shares do not trade on public exchanges and are not issued through an initial public offering. Shareholders may not be able to sell their shares without the agreement of the other shareholders. They have limited liability* *limited liability- Type of investment where the investor cannot lose more than the amount invested. The investor or partner is not personally responsible for the debts and obligations of the company therefore they won't lose any personal items.

Advantages and Disadvantages They have limited liability so there is no risk of losing any personal possessions. The growth of the company may be limited because the maximum shareholders are 50. More capital can be raised as the maximum shareholders can be up to 50. The shares cannot be sold without the permission of the other shareholders. Easier to raise finance. Greater admin costs. Stable form of structure, even when the shareholders change. There may be arguments between the different shareholders.

Public Limited Company (PLC) e.g. Tesco, ITV, British Airways A Public Limited Company have to have the following features: Shares are sold to the public on a Stock Exchange. Shareholders have Limited Liability. Shareholders vote for a board of directors who run the business. Accounts must be published and made available to any-one who wants to see them.

Advantages and Disadvantages They have limited liability for the shareholders so there is no risk of losing any personal possessions. There are a lot of legal formalities. The business has separate legal entity; there is continuity even after the shareholders die. The original owners may lose control. There is a large capital sum because there is no limit to the number of shareholders. The companies are huge in size so decisions would be slow to be made and they might face management problems The shares are freely transferable.

Not-for-profit - social enterprises e.g. The Big Issue, the Eden Project and Jamie Oliver's restaurant Fifteen A social enterprise is a business that trades for a social and/or environmental purpose. It will know what difference it is trying to make, who it aims to help, and how it plans to do it. It will bring in most or all of its income through selling goods or services. And it will also have clear rules about what it does with its profits, reinvesting these to further the ‘social mission’

Advantages and Disadvantages Can receive a grant from the Government. Can't always in the location they want. Creates jobs for the unemployed. High training costs. The business will meet the customers needs Despite hard work the social benefits of a social enterprise may take years to appear Social enterprises attract passionate people, so they can be genuinely inspiring places to work or volunteer. It can be difficult to see a social enterprise as both a business and a community organisations.

Franchises e.g. Pizza Hut, KFC, Nisa Local, A franchise is when a person acquires the right to use an existing company’s idea A franchise is a joint venture between: The franchisee- the person who buys the right from a franchisor to copy a business format. And a franchisor, who sells the right to use a business idea in a particular location.

Advantages and Disadvantages People already know the company so there is more chance of the business being a success. The person running the business would have to pay royalties whether their franchise is successful or not. The franchisor will provide on-going support; training for the workers etc. The franchisee would have either no or very limited control over how to run their franchise. The business is already established so the business owner wouldn’t have to think about making logos, posters, etc. The franchisee would be tied to one supplier even if there is a cheaper supplier. The business is less likely to fail Initially starting a franchise would cost a lot