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TABLE OF CONTENT

TABLE OF CONTENT

• TABLE OF CONTENT
• I. Introduction
• II. Legal Structure of organizations
  • 1. Sole trader & partnership
  • 2. Limited Company
• III. Management and Sources of Finance
  • 1. Sole Trader
  • 2. Partnership
  • 3. Limited Company
• IV. Conclusion
• Reference

registration is required if your annual turnover is over £85,000. CIS (Construction Industry Scheme) registration is required for subcontractors and contractors operating in the construction industry (GOV. UK, 2022). It's also important to name your business because if the name or logo you're applying for is already in use by another business, they can take legal action against you.

b. Partnership

• Definition: A partnership involves you and your partner (or partners) sharing personal responsibility for the business. It includes losses incurred by your business; stock and equipment purchasing for your business (GOV). There are 3 types of partnership and their examples are the following: + GP: Doctors, practitioners, and other medical practices; Musical groups; Law firms. + LP: filmmaking and real estate + LLPs: Financial advising businesses; Marketing firms.
• Liability: Unlimited
• Legal Entity: Like a sole proprietorship, it is not a separate legal entity. (Grzegorzek, 2021).
• Tax: A general partnership or limited partnership is tax-transparent: partners are taxed on the profits generated by the company (Sutherland, D. & Williams, T., 2019).
• Life: Setting up a partnership is easier and less expensive than setting up a company. According to the partnership agreement, there may be a specified number of years for this type of business to exist. (CliffsNotes, 2022)
• Legal formation/ Registration: Set up a company by choosing partners, getting a partner agreement, and deciding on a reasonable name to register with HM Revenue & Customs (HMRC) (GOV).

2. Limited Company

a. Type of organization - Private Limited Company: The shares of a private company can be sold to a few willing investors privately (S. Mukhopadhyay & D. Vaidya, 2022). A private limited company can be used as a structure for any type of business ranging from service providers, retail outlets, product manufacturers and digital enterprises (Indeed Editorial Team, 2022). - Public Limited Company: Registered shares of a company can be sold to the general public (S. Mukhopadhyay & D. Vaidya, 2022). Typical examples of

this would be local retailers that do not have a national presence, like shops or restaurants.

b. Legal Structure - Liability: Limited - Legal Entity: Separate from its owners (Grzegorzek, 2021). - Tax: Business is required to pay corporation taxes - Life: A limited company has an indefinite lifespan. This company continues to trade even after the death of a director or shareholder. (Private Limited Companies, n.) - Legal Formation/ Registration: An individual or an organization can form a private limited company (incorporated) at Companies House (GOV, 2022). It involves signing a Memorandum of Association (in the prescribed format), filling out Companies House Form IN01, and paying the registration fee. In addition, companies will need articles of association, however these do not have to be filed with Companies House unless they wish to have bespoke articles rather than the model articles prescribed by the Companies Act 2006. (Simply Docs, 2022)

III. Management and Sources of Finance

1. Sole Trader

a. Management Controlling operations and managing a partnership does not require bylaws or an agreement. The proprietor can therefore run the business as he/she sees fit (Masters, T., 2012). A sole proprietor's first managerial responsibility is to set up the company (Howell, R., 2013). Then they need to critically implement POCCC into their business because no other person will be responsible for departments like human resources, marketing, financial etc,. The founder of a sole trader, more than any other type of business, must plan, organize, command staff, control effectively, and coordinate activity and effort.

b. Sources of Finance It is not possible to sell shares of a sole proprietorship to investors in order to raise capital. Most of the time, you'll have to use your own finances, such as savings and retained profits, loans from banks, and credit cards (Thompson J., 2010). Other sources could be loans from relatives or friends, grants from sole proprietors, etc, (Thompson J., 2010).

• pay corporation taxes

• You may be fined, prosecuted, or disqualified if you fail to fulfill your duties as a director.

A director should follow POCCC (Planning, Organizing, Commanding, Co-coordinating and Controlling) to lead your organisation to success due to its complexity and a large number of employees. It is still your legal responsibility to handle your company's accounting, records, and performance, even if someone else handles some of these daily tasks (such as an accountant).

b. Sources of Finance

Capital can be raised in three ways: retained earnings, borrowed capital, and equity (Investopedia, 2022). Retained earnings enable companies to anticipate higher profits without owing their shareholders any money. Debt capital of businesses is raised by borrowing from banks and other lenders or issuing bonds that represent the company's debt. Equity capital is provided by external investors, which has no costs but does not offer tax advantages. IPOs (initial public offerings) can be a way for private businesses to gain money by either selling equity or going public (SEC, 2022). A secondary offering is one way for a public corporation to increase its funding (Investopedia, 2022).

The cash outflow (taxes and employee salaries) of the organization has an impact on its finances. The way you withdraw funds from the business depends on who you are and how much you withdraw. You may receive a salary, costs, or benefits if you work as an employee. Paying employee salaries, however, involves deducting income tax from HM Revenue and Customs (HMRC) and national insurance (GOV, 2022). A dividend is something you can get if you own shares. If a corporation has achieved a profit, it can pay its shareholders that amount. It is not necessary for your business to pay out a greater dividend than its available profits from the current and the previous fiscal year. Dividend payments are not subject to taxation by your corporation. However, if stockholders are over $2,000, they may need to pay income tax. Directors' loans allow directors to withdraw even more money from the company than they have contributed. (GOV, 2022)

IV. Conclusion

In conclusion, there are two types of organizations that are unincorporated and incorporated organizations. They differ fundamentally in the legal structure. Divided into limited liability or not, there are also legal entities, life span, tax imposed and ways of registration. Each organization has different characteristics and is suitable for specific objects. If you do not have a lot of capital and are not ready to manage a large business model, a sole trader and partnership is recommended. And private and public companies will target those who are looking to earn a large and long-term income, as opposed to risky outcomes.

Reference

GOV. UK (2012) Set up as a Sole Trader [online] available from <gov/set-up-sole-trader> [Accessed 14 December 2022]

GOV. UK. (2012) “Running a Limited Company: Your Responsibilities”. [online] <gov/running-a-limited-company/taking-money-out-of-a- limited-company> [Accessed 14 December 2022]

How to Form a Private Liability Company (2022) available from <https://simply- docs.co/Company-Formation-Documents/How-To-Form-A-Private- Company-Limited-By-Shares#:~:text=A%20private%20limited%20company %20can,and%20paying%20the%20registration%20fee.> [Accessed 14 December 2022]

Howell, R. (2013) Managerial Functions of Sole Proprietorships [online] available from <smallbusiness.chron/managerial-functions-sole- proprietorships-62486> [Accessed 14 December 2022]

Indeed Editorial Team (2022) Career Guide [online] available from <uk.indeed/career-advice/career-development/what-is-private- limited-company> [Accessed 14 December 2022]

Management of Partnership: Everything You Need to Know (2022) available from <upcounsel/management-of-partnership> [Accessed 14 December 2022]

Masters, T. (2012) The 5 Main Characteristics of Proprietorship [online] available from <yourbusiness.azcentral/5-main-characteristics- proprietorship-11373> [Accessed 14 December 2022]

Miller, V. (2021) Sole Trader Tax [online] available from <cpdonline.co/knowledge-base/business/sole-trader- tax/#:~:text=Sole%20traders%20are%20only%20required,self%2Dassessment %20form%20each%20year.> [Accessed 14 December 2022]

Pahwa, A. (2018) What Is A Company? Meaning, Features, & Types Of Companies [online] available from <feedough/what-is-a-company- meaning-types-features-of-a-company/> [ Accessed 14 December 2022]