Nature, Formation and Management of Business Organisations

This report discusses the different types of business organisations in UK such as sole trader, partnership, limited company and limited liability partnership along with their advantages and disadvantages. It also provides a recommendation for expanding a business. The report is helpful for those who want to understand the environment of business organisations in UK.

NATURE,
FORMATION AND
MANAGEMENT OF
BUSINESS
ORGANISATIONS

Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................2
Business Overview of UK...........................................................................................................2
Different Business Structure in UK.............................................................................................2
Sole Trader Business structure.....................................................................................................3
Partnership Business Structure....................................................................................................3
Limited Company Business Structure.........................................................................................4
Limited Liability Partnership Business structure.........................................................................5
Recommendation.........................................................................................................................5
CONCLUSION ...............................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Business is not that easy for everyone, it requires some special skills to understand the
environment of all the type of business organisation's. The term business is defined as, an
organisation or enterprising entity which engaged in commercial, industrial or in professional
activities. Business can be done for the purpose of profit and there are some business also which
known as non-profit organisation. Business is a very wide term, under it there are different types
of organisation which, perform its function with the legal framework of United Kingdom. In UK,
all the businesses are govern with the company law which, allow and restrict the business entities
to perform their functions. Business law provides the variety of businesses which the person or a
group of person can start with their capabilities and according to their need. There are some
types of businesses such as; Sole Trader, Partnership, Limited Liability Company, Limited
Liability partnership etc. These are the types of businesses which the person individually or with
the group can start with the motive of earning profit. In this report, different types of business
organisation will get discuss, for giving a better suggestion to a person name as Sam, who deals
in a electrical parts as a sole trader (IOM Solutions) for the last eight years (Almeida, and
Wasim, 2022). He wants to expand the business, regarding that the appropriate types of business
will suggest to him.
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TASK 1
Business Overview of UK
Doing business in UK is not so hard, there are large number of people who own business.
It becomes the place of doing business for the world, UK provides many opportunities for the
people to do business in their land. From 2020, six million private sector businesses got
registered with HMRC. To govern all the business it is necessary to have such act or law under
which all the functions and operations of business get done. The Company Law is a framework,
under which all the businesses which decide to form a company get govern. IN UK there is no
obligation to incorporate as a company, there are many businesses which develop as a sole trader
or as partnership. If business decide to incorporate as a company, the UK business system is one
of the best place in the world to run a company. The procedure of doing a business in UK is
considered to be very fast, flexible and of low cost. As, business contributes the huge amount in
the economy of UK, therefore there are various rights will be given to do the business in UK. To
set up the business, it is necessary to fulfil all the guideline given in the company law. It makes
the business legal and give many benefits like, after registering the business company at
companies house, the owner and the company become the different entity (Bashir,2020). It
means, an owner get free from the companies liabilities. It forces the companies to form their
Memorandum of Association, which describe the external relation of the company and there is
another document known as Article of Association, which describes the internal policies of the
company.
Different Business Structure in UK
Before dong a business it is very essential to determine the structure of business, and it
will depend on the type of business which person wants to start. It is a task for a person to initiate
any kind of business, after all its a business in which no one can pretend perfectly that it will be
profitable fro them or not in the future. To overcome with this fear it is better to choose that type
of business structure which suits the person investment and the capabilities to handle the risk and
pressure of the business environment (Brouder, 2020). There are four main business structure in
the legal system of UK which has it own merit sand demerits according to the level of business.
Some are simple while some are difficult to manage. To give a better suggestion to Sam about
the different business structure which helps in expanding the business. It is quit necessary to get
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aware about all the different structures of business in UK along with the advantages and
disadvantages of each structure's.
Sole Trader Business structure
Being a sole trader is very easy and its a simplest form of business structure. In which the
business will be run by the owner only. Like a Sam got engage in the same structure of business.
To start the sole trading it is required to inform HMRC about the business status, and to get
registered for self assessment tax returns. It is a legal duty to inform the HMRC, for the safety. It
is the responsibility of the sole trader to pay the absolute level of tax (Cott,2021). According to
the law from 2021, all sole trader are entitled for £1000 tax free allowance per annum. Being a
sole trader is very easy, where a person kept all the profit after tax. But, if person like Sam
earning more profit from this structure of business, it will no more beneficial for the owner.
Because as much the person earn, the business fall in the higher tax bracket then, it may not be
an efficient business structure for the future (Jeon, and Yang, 2021). As like it simplicity, there
are some difficulties also in this structure of business like; an owner would be personally liable
for all the debts and losses occurred in the business. It can be both there are some advantages and
also some demerits of sole trader.
Advantages
 It has a simple set up.
 Administration responsibility is very low, owner has to submit self-assessment yax return
only.
 There is no registration fees.
 Sole Trader has all right to enjoy all the profit after tax deduction.
Disadvantages
 Sole Trader is liable for all the businesses loss, negligence and debts.
 There is high personal risk.
Partnership Business Structure
It has a similar requirement and responsibilities as sole trader, apart from the only person
in partnership there are one or more partner who regulates its functions. To being in a partnership
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it is necessary to signed a agreement which, covers the sharing of profits, losses and liabilities
according to the investment they bring at the starting of business. There is a freedom for the
partner to leave the agreement at any time (Nayak, 2020). Like the sole trader the partner holds
personal liabilities up on the business, and individually the partner pay their tax and National
Insurance contributions. It is necessary to registered the partnership firm with HMRC, and
choose their nominated partner who will be responsible for assuring all the administration task
should complete on time.
Advantages
 Its easy to set up the business.
 Partner's have a support of each other in a business.
 Risk will be shared between the partner's.
Disadvantages
 Liabilities is on all the partner's.
 All the partner's are held liable for the debts, negligence of the firm as well as for their
individual.
Limited Company Business Structure
In such type of business structure, the company get registered to get separate the identity
of their members with the company. In such type of company the word “LTD” appears after the
name of company, it means that business has its own legal identity and provide limited liability
to the member (Smith, and Williams, 2018). To get this benefit it is necessary to create the
company name and get registered the company at Companies House. There are board of
directors who would manage the business with the help of their shareholder's. The Director has a
duty to complete the administration duties like filing an audit of every year. It will be better for
the partner to get register for the corporation tax.
Advantages
 There is a limited liability for the partner's, they got liable only what they invested in the
company.
 Registration at companies house will make the customer's and stakeholder's legitimate
members of the company.
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 Paying the corporation tax is more beneficial than the income tax in the higher tax
bracket.
Disadvantage
 High fees is required in registering the business.
 There is high administration responsibility.
Limited Liability Partnership Business structure
It has same structure like partnership but, the liability is limited. The company can use
the word “LLP” after the name of the company, if they deal under the registered name. It must be
get registered at Companies House, registration for corporation tax and get notice to HMRC
about the registration (Svensson, and Raw, 2022). It minimum required two member's to start the
LLP. Like the partnership all the partner's are liable for their own negligence not of the others
and also liable for the debt to whatever they had invested into the business. Like the partnership
an agreement would made between the partner's to bring clarity in a business about the profit and
loss sharing.
Advantages
 Partner's are liable for their own negligence.
 Paying the corporation tax is more beneficial to pay the income tax.
Disadvantages
 Two partner's have responsibility to submit end year accounts.
 It has high administration responsibilities.
 High fee is involved in registering the business.
Recommendation
After discussing all the business structure and their merits and de merits. It is cleared
that , the sole trader is a simplest structure to set up and manage, but it is not the best structure of
business due to high cost for setting up the business and to bear all the liabilities. It is
recommended to Sam who is sole trader in IOM solutions that, before choosing the different
business structure it is necessary to make up the mins and clear the thoughts like; size of
business, nature of business, number of employee's, profit's margin etc. After knowing all these
circumstances it will be better for Sam to engage in a Limited Liability Partnership structure of
business (Yılmaz, and Yılmaz,2019). To expand the business it is the best structure in which the
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single person will get free from bearing all the debts and liabilities. In choosing LLP, Sam has to
share the profit but it just get shared according to their investment they bring in the business. The
main thing in this structure is to show the faith and trust on the partner's, it will enhance the
growth of business and fulfil the motive Sam. This structure of business will help IOM solutions
to capture the market and help the company to earn high revenue.
CONCLUSION
From the above report it is concluded that, there are mainly four different structure of business
i.e. sole trader, partnership, limited company and limited liability partnership. All the four
structure's were discussed briefly and accurately with their advantages and disadvantages of
each. At the end of the report, the recommendation will be given to Sam, a sole trader in IOM
solutions to expand the business. For the IOM solutions, LLP is the best structure to expand the
business.
REFERENCES
Books and Journals:
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Almeida, F. and Wasim, J., 2022. Eco-innovation and sustainable business performance:
perspectives of SMEs in Portugal and the UK. Society and Business Review, (ahead-of-
print).
Bashir, M., 2020. Chenab Limited: Company in Decline. Asian Journal of Management
Cases, 17(2), pp.188-210.
Brouder, P., 2020. Reset redux: Possible evolutionary pathways towards the transformation of
tourism in a COVID-19 world. Tourism Geographies, 22(3), pp.484-490.
Cott, P., 2021. Legal matters: What is the best business structure for you?. Electrical
Connection, pp.36-37.
Jeon, C.Y. and Yang, H.W., 2021. The structural changes of a local tourism network:
Comparison of before and after COVID-19. Current Issues in Tourism, 24(23),
pp.3324-3338.
Nayak, H., 2020. How Partnership Act Ease-out Doing Business for Partnership Firm?. Jus
Corpus LJ, 1, p.641.
Smith, D.G. and Williams, C.A., 2018. Business Organizations: Cases, Problems, and Case
Studies [Connected eBook with Study Center]. Wolters Kluwer.
Svensson, P.G. and Raw, K., 2022. Hybrid organizational forms in sport for development and
peace. In Social Innovation, Entrepreneurship, and Sport for Development and
Peace (pp. 123-135). Routledge.
Yılmaz, E. and Yılmaz, E.E., 2019. The role and importance of rural tourism on the
development and promotion of cultural heritage tourism. In Conservation and
promotion of heritage tourism (pp. 108-126). IGI Global.
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