Business ownership
Types of business
ownership / responsibilities,
investment & profits
Business ownership
Ownership types:
o Sole Trader
o Partnerships
o Private Limited Company
o Public Limited Company
o Limited Liability Partnership
o Cooperative
o Community Interest company (CIC)
Business ownership
Snippets:
o Sole traders must raise all the finance to
set up and run the business themselves
o Partners can all contribute to the financing
of a firm
o Private limited companies can sell shares
to family, friends and associates
o Public limited companies can raise finance
by selling shares on the stock market
Business ownership
Limited liability explained:
o A sole trader or partnership can be held
responsible for all the debts of the firm
o The owners of limited companies can only
be held responsible up to the value of their
investment in the business
Business ownership
Ownership and Control
o Owners often want to keep control of their
businesses
o This leads many small firms to stay as sole
traders, even though this limits their funds
o Taking on new partners or shareholders cuts
the amount of control that owners have
o If you hold the majority of shares (over 50%)
you can keep some control, but not all
Business ownership
Legal Responsibility:
o Sole traders have no legal formalities to go
through, apart from registering for VAT if their
turnover reaches a certain amount
o Partnerships also have no legal formalities but
may choose to sign a Deed of Partnership
o Companies have to go through a series of
legal formalities
Business ownership
Registering as a Sole Trader:
o Register as self-employed by contacting HM Revenue
and Customs (HMRC)
o Complete an annual self-assessment form for tax, so
you need to keep accurate records to support this
(we will cover this area on the finance module)
o Pay Class 4 National Insurance Contributions which
are payable as a percentage of your net profits when
they reach a certain level, as well as fixed rate Class 2
NICS (currently ￡….. PW)
Business ownership
Forming a Limited Company:
o Limited companies must produce two
documents
o Memorandum of Association and Articles
of Association
o If these are acceptable, the Registrar of
Companies awards a Certificate of
Incorporation
o The company can then trade
Business ownership
Other Legal Requirements:
o A limited company must also send a copy
of its annual accounts to the Registrar
o It must also hold an Annual General
Meeting and invite its shareholders to
attend
o Becoming a Public Limited Company
involves far more time and cost
o It must have a minimum of £50,000 share
capital
Business ownership
Where the Profits go:
o Limited companies use part of their profits
to pay a dividend to shareholders
o They can choose not to pay a dividend but
always have to pay interest on any
borrowing the company has made
o Profits can be ‘retained’ and ploughed
back into the company
Business ownership
Profits and Losses:
o Any profits made (once tax has been paid)
can be kept by the owners of the business
o This makes Sole Trader (and partnership)
businesses very attractive
o But remember … whatever funds have
been put into the business will be lost if it
goes bust!
Business ownership
Some sources of investment:
o Loans
o Overdrafts
o Profits that are fed back into the business
o Shares
o Grants and donations
o Crowd funding
o Investors