Legal Structures
Legal Structures
Sole Traders
- Sole Traders are the most simple form of business structure.
- They are owned and operated by a single individual.
- The owner is responsible for all business debts and carries the risk of the business.
- They have unlimited liability, meaning the owner’s personal assets can be used to pay off debts.
- They have complete autonomy in decision making.
Partnerships
- A Partnership involves two or more people running a business.
- They share both the profits and losses of the business.
- All partners have unlimited liability unless they form a Limited Liability Partnership (LLP).
- Decisions are carried out together, but this can result in conflicts.
Private Limited Companies (Ltd)
- An Ltd is a company with limited liability and its shares are not available to the general public.
- Shareholders are typically family and friends.
- It has a separate legal identity from its owners.
- The owners have limited liability, meaning they will only lose what they invested if the company goes bankrupt.
- It has stricter compliance rules and is more expensive to set up than a sole trader or partnership.
Public Limited Companies (plc)
- A plc is similar to a Ltd company, but its shares can be bought and sold by the public on the stock exchange.
- It’s more costly and complex to set up due to regulatory requirements.
- The company must publish its financial statements which makes it more transparent to the public and potential investors.
- This increased scrutiny may negatively influence business tactics and decision-making.
Franchises
- With a franchise, an individual operates their own business under the brand and business plan of a larger company.
- Franchisees pay a fee and a percentage of their profits to the franchisor.
- This involves less risk than starting a business from scratch as the brand is already established.
- The franchisor typically provides training, equipment, and support to franchisees.