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.