Choosing the Best Business Model for IOM Solutions: A Guide for Sam

Sam, the owner of IOM Solutions, is planning to develop the firm but is unsure of the best corporate ownership structure. This guide discusses the four types of business models available for Sam to opt for, including Sole Trader, Partnership, Limited Partnership, and Limited Company. It also provides a recommendation for Sam and the advantages and disadvantages of each option.

Business Law

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Following are the four types of Business models available for Sam to opt:..........................3
Recommendation....................................................................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8
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INTRODUCTION
The type of a business a person carries is dependent on various factors such as the liabilities to be
incurred, the probabilities of growth and development, profit generation, etc. The
problem here is Sam sells electrical parts to local garages as a lone entrepreneur (IOM
Solutions). Sam has been the owner of the company for eight years. Sam has noticed
that the company has increased in terms of demand and personnel over the last two
years (Sadiq, 2021.). This has put a lot of pressure on Sam, but it's also given him a lot
of chances. Sam has planned to develop the firm as of October 2020. Sam, on the other
hand, is unsure of the best corporate ownership structure for IOM solutions. The
different options available with Sam with merits and demerits of them along with the
best recommendation of business for Sam is the subject of this work.
MAIN BODY
A business entity is the vehicle through which a person or group of persons conducts business.
The options available with Sam are Sole Trader, Partnership, Limited Partnership and Limited
Company. Each of these business formations has its own set of advantages and disadvantages,
such as restricted liability, simplicity of establishment, and the amount of bureaucracy required
to administer them. The easiest way to decide which trading structure to use is to examine the
advantages and disadvantages of each option and see which one best matches the business's
goals, style, and aspirations (Giupponi and Xu, 2020.).
People may want to examine the norm within a given industry or business when picking a type
of entity. Solicitors' practises, for example, are normally partnerships; larger enterprises are
usually corporations, and so on.
Following are the four types of Business models available for Sam to opt:
 SOLE TRADER
A lone trader is a non-registered business. On a day-to-day basis, they typically have one
owner who runs and works in the business. In contrast to limited companies, sole traders
are not considered independent from the person or people who own the business. As a
result, a sole trader's assets and liabilities are viewed as those of the individual who owns
and runs the business. This has an impact on not only how the company is taxed, but also
how much the owner is exposed to the company's debts. The business's obligations
become the owner's liabilities, and personal property can be sought if the unincorporated
business is unable to pay. When compared to the formalities and rules imposed on a firm,
sole merchants have fewer (Tiwasing, 2021.). There is no need to file an annual return,
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keep statutory records, compile statutory accounts, or file a separate company tax return.
Each of these can result in cost savings for the company and its owner.
There are few criteria for starting a business as a lone trader. There is no legal duty to
notify Companies House (who only form and regulate companies). Typically, Revenue
and Customs should be contacted to inform them that the person will now be earning
money from self-employment (on which they will pay income tax). Once the turnover
criterion is reached (currently £81,000), VAT registration will be required. Small, local
providers such as corner shops, builders, and plumbers have always been solo traders.
While they are simple and inexpensive to establish, they lack the limited liability status of
a corporation and, some claim, the prestige of a registered firm.
 PARTNERSHIP
A partnership is a business arrangement consisting of two or more people who share
profits and losses. There are three main sorts of collaborations. A general partnership
(GP) is one in which all partners have equal responsibility for the business's management
and have unlimited liability for any debts or obligations it may incur. The responsibility
of general partners in a limited partnership (LP) is limited to the amount of money they
have contributed to the partnership. Limited partners are typically passive investors who
have no involvement in the day-to-day operations of the company (Rye, 2020.).
Incorporated Limited Partnership (ILP) - An ILP allows partners to have limited liability
for the business's debts. In an ILP, however, at least one general partner must have
unlimited responsibility. If the company fails to meet its responsibilities, the general
partner (or partners) are held personally accountable.
Working as a solo trader has identical duties and responsibilities, but a partnership
business structure comprises one or more business partners. When you establish up a
partnership business, you must have a formal agreement describing the agreed-upon split
of earnings, losses, liabilities, and ownership between you. It should also include exit
strategies in case one of the partners decides to leave the company. It is the simplest
business form for two or more partners, although it may be better suited to a different
business structure if there are an excessive number of partners. Because you and the
business are seen as one thing, all partners would be personally liable for any unfortunate
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business debts, losses, or negligence, just like sole traders. In addition to completing the
partnership agreement, each business partner must register as self-employed and file their
own tax returns in order to pay their own taxes and National Insurance contributions.
There must be an agreement on the name for the firm which should be registered it with
HMRC, and a nominated partner to be designated while registering the partnership
business structure. The designated partner will be in charge of ensuring that all
administrative activities are accomplished on time (such as tax returns and record
keeping).
 LIMITED LIABILITY PARTNERSHIP
A legal business structure is a limited liability partnership (LLP). Limited liability
partnerships are commonly used by professional firms like attorneys and accountants, but
the form can also be helpful for other sorts of businesses. Limited liability partnerships
are regulated by different pieces of legislation, notably the Limited Liability Partnership
Regulations, 2001, and differ from "conventional" commercial partnerships as well as the
limited company structure. A limited liability partnership (LLP) is a separate legal entity
from its members (partners), who are only responsible for the money they invest plus any
personal guarantees (Reuschke, Mason and Syrett, 2022). The partnership is registered
with Companies House and can only be utilised by enterprises that make money.
Associates are needed to give the firm a legal address and keep a membership list. The
maximum number of partners is unrestricted, although there must be at least two
members at the time of formation, either people or limited businesses. It's also possible to
form an LLP with just one person and a dormant business. The limited liability
partnership agreement should spell out how the business will operate, including revenue
structures, dispute resolution procedures, and member obligations. Owners must choose a
business name that is distinct from other businesses when incorporating. The
incorporation paperwork must have a registered address as well as the following
information: • Information about the designated members • Information about other
members • Information about the partnership's principal commercial activities • A
statement of compliance • A list of People with Significant Control (PSC)
 LIMITED LIABILITY COMPANY
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In the United Kingdom, limited liability companies are the most frequent type of business
entity. By comparison, those who are limitless are unusual and rare. The major aspect of
limited liability businesses is that they protect the personal wealth of the owners
(shareholders) and the people who govern them (directors). A company's trade, any debts
it may incur, and any other dealings it may engage in are considered to be its own. Only
the company's assets can be sought if it borrows money and then defaults on the loan.
The assets of the directors and shareholders are generally safe and are not considered
corporate assets (Harris, 2020). Their liability protection is minimal.
If, on the other hand, a partnership borrows money and subsequently defaults on the debt,
the partners are held accountable. They can repay the debt using their other company and
personal assets. In extreme circumstances, personal property such as houses, vehicles,
jewellery, and other valuables may have to be auctioned to pay off the company's debts.
In theory, the only risk to which firm shareholders are exposed is any unpaid money
owed for their shares. Unpaid share capital is the term for this situation. The most
significant advantage of forming your own corporation is the restricted liability
protection it provides. Simply put, your personal assets will be safe if your company gets
into difficulties. This is due to the fact that a limited business is considered as a distinct
legal entity, a legal 'person' in its own right. As a result, the company is distinct from the
people who own and run it (Arensberg, 2018.). The 'corporate veil' is the term for this
separation. The firm, not its owners (shareholders/guarantors) or directors, is responsible
for any debts, losses, or legal claims related with the company. When company start
trading as a limited company, the professional position and image will significantly
increase. While the business activities, ownership structure, and internal management
may be the same as when the owner was a single trader, businesses are viewed in higher
regard and make a better impression.
Recommendation
All the business alternatives available to Sam for the expansion of his business are detailed
earlier but the most suitable business for Sam referring the present needs of him will be Limited
Liability Partnership. The legal business structure he choose will have an impact on many
aspects of your firm, including taxation, personal liability, your capacity to raise funds, and the
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amount of administrative work you must perform and send to HMRC. There is no "one size fits
all" solution to the structure because enterprises come in a variety of functions and sizes. The
personal assets of him will be protected as his liability will be limited. There will be great
flexibility in terms of how he desires to choose the business and also in the manner of
management of business (Hinton, 2021.). While choosing the members he will have autonomy of
choosing individuals as well as the companies to be art of his business after expansion. In
Limited Liability Partnership the level of membership can also be varied as the level of
involvement of members can be different. The partners with Sam will be able to enter into
business transactions or contracts with their own name and will be entitled to wide range of tax
benefits.
CONCLUSION
Each company structure has distinct characteristics that correspond to various sorts of
businesses. A sole trader is the easiest structure to establish up and administer, but due to
personal liability, it may not be the optimal structure for a high-cost start-up. That is why it is
critical to evaluate both the function and the size of the company. A partnership arrangement is
excellent for small enterprises with two or more persons, but due to the personal liability
involved, one must trust partners. A limited company or limited liability partnership business
structure is better for larger organisations because it eliminates the possibility of you being
personally liable for business mistakes that could result in costly claims.
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REFERENCES
Books and Journals
Arensberg, M.B., 2018. Population aging: opportunity for business expansion, an invitational
paper presented at the Asia-pacific economic cooperation (APEC) international
workshop on Adaptation to population aging issues, july 17, 2017, Ha Noi, Viet Nam.
Journal of Health, Population and nutrition, 37(1), pp.1-11.
Giupponi, G. and Xu, X., 2020. What does the rise of self-employment tell us about the UK
labour market?. London: Institute of Fiscal Studies.
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.
Hinton, J., 2021. Five key dimensions of post-growth business: Putting the pieces together.
Futures, 131, p.102761.
Reuschke, D., Mason, C. and Syrett, S., 2022. Digital futures of small businesses and
entrepreneurial opportunity. Futures, 135, p.102877.
Rye, J., 2020. What is the difference between a sole trader and a limited company?. In Setting
Up and Running a Therapy Business (pp. 132-134). Routledge.
Sadiq, M., 2021. IMPACT OF MAKING TAX DIGTAL ON SMALL BUSINESSES. Kuwait
Chapter of the Arabian Journal of Business and Management Review, 10(3), pp.123-
134.
Tiwasing, P., 2021. Brexit and skill shortages: an empirical analysis of UK SMEs. 739898418.
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