Business Ownership: The Legal Business Structure Of UK Companies (Essay)

Business and Organizations in the United Kingdom

This present report is related to IOM Solutions which is eight years old sole trader indulged in the business of selling electrical parts to the local garages. The IOM Solutions is operated by Mr. Jhon. However, in the month of October 2020, due to the constant increase in terms of demand as well as employees, Mr. Jhon decided to expand his business. But Mr. Jhon is not sure about the most suitable as well as appropriate form of business ownership for IOM Solutions. Therefore, this report provides information in relation to the most appropriate form of business ownership for IOM Solutions. In addition to it, after introduction, this report provides the information in relation to the business and organizations in the United Kingdom, which includes the nature and management of the company. After that, the legal business structure of the companies in the United Kingdom is provided, which include the sole trader, general partnership, partnership, and limited liability. Lastly, before the conclusion of this report, the recommendations for the IOM Solutions have been provided.

There are different laws by which the companies or the businesses are governed, which include Companies Act 2006, Limited Liability Partnership Act 2000, and Partnership Act 1890. Business Transaction Management helps in managing the information technology from the perspective of the transaction of the company. The company is vicariously liable for the actions of its employees during the course of business, and if the company commits any negligent act, such a company shall be held liable for the same. The directors are responsible for managing, controlling, as well as directing the affairs of the company. Further, at any time, the partnership can be terminated by any of the partners of the business only by serving notice to the other partners. In the United Kingdom, all the companies are legally bound to have both Memorandum of Association (MOA) as well as Articles of Association (AOA).

 The Legal Business Structure of the United Kingdom Companies

The term sole trader is defined as the person who is self-employed, owns as well as runs their business (Korchak, 2021).

For formation, firstly, choose the name of the business that a person wants to start, but it should be unique means it shall not be used by any other business (Korchak, 2021). Then register the name as the trademark for the purpose to prevent other people from using that particular name (Korchak, 2021).

Further, the sole trader shall have to pay the tax on the net profit. In the United Kingdom, currently, the sole trader is required to pay the Class 2 as well as Class 4 National Insurance and Income Tax on the net profit of the business (OTS, 2016).

The liability of sole traders is unlimited (Korchak, 2021).

The sole trader business can be dissolved at any time, but there are certain steps that need to be followed, which include firstly, telling HMRC about the dissolution of the sole trader by the end of the financial year (OTS, 2016). Secondly, before the deadline, it is required to send the final self-assessment tax return (OTS, 2016). Thirdly, pay off the bill in relation to the final tax and lastly, cancel the registration of VAT if necessary (OTS, 2016).

• Sole trader businesses can get started immediately.
• In this, there is a simple registration process.
• There is a sole owner of the business, due to which there is complete control of the sole trader over the entire business.

• In this, there is unlimited liability.
• The responsibility and accountability are only on the sole trader.
• There is a barrier to finance because of the unlimited liability of the sole trader business.

Legal Business Structure of the Companies in the United Kingdom

According to the Partnership Act, 1890, the term general partnership refers to the two or more people trading together with the main motive to earn a profit (Korchak, 2017).

For the formation of the general partnership, certain steps need to be followed, which include firstly, choosing the name for the business, then creating the partnership agreement, thirdly, registering with the Companies House (Johnstone, 2016). After that, obtain any other business licenses that are necessary, then register with HMRC, and lastly, open the bank account, but before this, it is required to secure the Employer Identification Number (Johnstone, 2016).

In a general partnership, all the partners of the partnership firm are liable to pay tax (Efremova, 2020).

The liability in a general partnership is an unlimited joint liability (Clifford and Warner, 2020).

In the United Kingdom, the general partnership is dissolved in each and every case if any event has happened which is unlawful for the members of the firm or for the business of the firm to carry the same in the general partnership (Li and Wolfstetter, 2009). Further, it can be dissolved by the agreement made between the parties, by notice, by expiration of the means if the partnership is made for the particular project then after the completion of that project, the general partnership shall be dissolved, by the death of any of the partner or bankruptcy, and lastly, by the court (Li and Wolfstetter, 2009).

• It is very easy to create as less formality needs to be done.
• The burden is shared between the partners.

• There is an unlimited joint liability.
• There are fewer security means if one partner quits, then the partnership will be dissolved.

In the United Kingdom, the term partnership is referred to as the general partnership.

According to the Partnership Act, 1890, the term partnership refers to the two or more people trading together with the main motive to earn a profit (Korchak, 2017).

For the formation of the partnership, certain steps need to be followed, which include firstly, choosing the name for the business, then creating the partnership agreement, thirdly, registering with the Companies House (Johnstone, 2016). After that, obtain any other business licenses that are necessary, then register with HMRC, and lastly, open the bank account, but before this, it is required to secure the Employer Identification Number (Johnstone, 2016).

In partnership, all the partners of the partnership firm are liable to pay tax (Efremova, 2020).

The liability in partnership is an unlimited joint liability (Clifford and Warner, 2020).

In the United Kingdom, the partnership is dissolved in each and every case if any event has happened which is unlawful for the members of the firm or for the business of the firm to carry the same in the partnership (Li and Wolfstetter, 2009). Further, it can be dissolved by the agreement made between the parties, by notice, by expiration of the means if the partnership is made for the particular project then after the completion of that project, the partnership shall be dissolved, by the death of any of the partner or bankruptcy, and lastly, by the court (Li and Wolfstetter, 2009).

• It is very easy to create as less formality needs to be done.
• The burden is shared between the partners.

• There is unlimited liability.
• There are fewer security means if one partner quits, then the partnership will be dissolved.

In the United Kingdom, according to the Limited Liability Partnerships Act 2000, it is a separate legal entity with unlimited capacity, which means that a Limited Liability Partnership can do all the things that a natural person is allowed to do (Whittaker and Machell, 2021). In addition to it, there should be two or more partners required to form a Limited Liability Partnership (Whittaker and Machell, 2021).

Sole Trader

Firstly, two or more people shall have to subscribe their names to the incorporation document (Harris, 2020). Such document should be delivered to the Registrar of the Companies at the Companies House (Harris, 2020). Further, the statement should also be delivered to the Registrar stating that all the requirements have been complied with in relation to the carrying of the business. This statement shall be made by the subscriber to the solicitor engaged or the incorporation document in the formation of the Limited Liability Partnership (Harris, 2020).

The Limited Liability Partnership is not liable to pay the tax at the level of the company. The profits are divided among the partners, and they all are personally liable to pay the income tax according to their share (Whittaker and Machell, 2021).

In this, the liability is limited (Harris, 2020).

The limited liability can be dissolved by the voluntary strike-off. For this, the application shall be made by all the partners of the Limited Liability Partnership to the Registrar to be struck off the register and dissolved (Whittaker and Machell, 2021).

• In this, the liability is limited.
• There is no requirement of a minimum contribution of capital in the Limited Liability Partnership.

• In limited liability, there is a lack of privacy as it is necessary to disclose financial information.
• In this, there is an inability to have the investment of equity as there is no concept of shareholding or equity in the limited liability like a company.

After analyzing different types of legal business structures for companies in the United Kingdom, the most suitable business organization type for Mr. Jhon to choose for his sole trader business named IOM Solutions is Limited Liability Partnership or Limited Liability Company. Mr. Jhon can expand his sole trader business by adding owners and incorporating the Limited Liability Company. Also, there is another reason behind recommending the limited liability business organization is that in this type of business organization, the liability of the partners is limited (Harris, 2020).

 Conclusion

After analyzing the situation and different types of business structure, it is concluded that there are different laws by which the companies or the businesses are governed, including Companies Act 2006, Limited Liability Partnership Act 2000, and Partnership Act 1890. Further, there are different legal business structures of the United Kingdom companies, including the sole trader, general partnership, partnership, and the limited liability partnership or the limited liability company. However, IOM Solutions is a sole trader business operated by Mr. John. As the demand and the employees of IOM Solutions have grown so, the best suitable method for expansion is a limited liability company.

References

Clifford, D. and Warner, R., 2020. Form a Partnership: The Complete Legal Guide. 11th ed. Nolo.

Efremova, T., 2020. Developing tax administration in the context of the partnership of participants of tax relations. Researchgate, 9(3), pp.109-123.

Harris, R., 2020. A new understanding of the history of limited liability: an invitation for theoretical reframing. Journal of Institutional Economics, 16(5), pp.643-664.

Johnstone, S., 2016. Participation and Partnership in the UK: Progress and Prospects. Developing Positive Employment Relations, pp.77-99.

Korchak, J., 2021. What is a general partnership?. Inform Direct. Available at: <https://www.informdirect.co.uk/business-management/general-partnership-uk-what-is-it/> [Accessed 20 January 2022].

Korchak, J., 2021. What is a sole trader?. Inform Direct. Available at: <https://www.informdirect.co.uk/business-management/what-is-a-sole-trader/> [Accessed 20 January 2022].

Li, J. and Wolfstetter, E., 2009. Partnership dissolution, complementarity, and investment incentives. Oxford Economic Papers, 62(3), pp.529-552.

OTS, 2016. SEPA: Sole Enterprise with Protected Asset.  Assets.publishing.service.gov.uk. Available at: <https://assets.publishing.service.gov.uk/government/uploads/system/uploads/
attachment_data/file/563407/SEPA_final_report_271016.pdf> [Accessed 20 January 2022].

Whittaker, J. and Machell, J., 2021. The law of limited liability partnerships. London: Bloomsbury Publishing.