F12-081 Business Structures: Unincorporated and Incorporated Report

This report provides a comprehensive overview of different business structures, comparing unincorporated and incorporated businesses. It begins by defining and analyzing sole trader and partnership models, detailing their characteristics, formation, management, and sources of funds. The report then transitions to incorporated businesses, differentiating between private and public companies, and examining their advantages and regulations. Key aspects such as liability, perpetual succession, and transferability of shares are discussed. The report also covers the legal structures, duties of directors, and a comparative evaluation of the formation of sole trader, partnership, and company structures, culminating in a critical evaluation and a business problem analysis, supported by relevant references.

Name: Bui Khanh Linh
Class: F12D
Student ID: F12-081
Table of Contents
I. Unincorporated business.......................................................................................................2
1. Sole trader:..........................................................................................................................2
2. Partnership:.........................................................................................................................3
II. Incorporated business........................................................................................................6
III. Legal structure..................................................................................................................12
IV. Duties of director..............................................................................................................12
V. Evaluation formation of sole trader. partnership, private and public company...........12
VI. Critical evaluate................................................................................................................14
VII. Business problem..............................................................................................................14
Reference:.....................................................................................................................................21
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I. Unincorporated business
Unincorporated business related to organizations that not separate of legal identity from the
owners. The owners are bear all of the liability of the business. There are two types of
unincorporated business which are sole trader (sole proprietorship) and partnership (Australian
Government, 2010). The owner of unincorporated busines is personally liable with the liabilities
of the business. As long as the owner live, the unincorporated business still exist.
1. Sole trader:
Definition: Sole trader is a type business that is own and manage by an individual. The owner of
sole trader responsible for all the profit and loss of his or her own business.
Characteristic:
- Single ownership: the business is owned by one person. He or she personally contribute
a whole capital for his or her own business
- Personally control: The owner wholly control of the business. He or she may ask
someone for advice but the decision-making right belongs to the owner.
- No legal entity: There is no separation between the legal entity and the owner of the
business. In case the owner is passed away or incapable of insolvency, the business is
considered to be dissolved.
- Unlimited liability: The owner must responsible for all the debt incurred during business
operation. If the asset is not enough to pay for the debt, the owner has to use personal
property to pay for it.
- Personally own profit and losses: The sole trader personally bear all the profit as well
as losses of the business
- Small scope: As the sole trader has limited source of fund then the operational scope is
limited
- Legal formation is unnecessary: Legal formalities in terms of establishing, management
and dissolve is not require
Formation
- General requirement: It is required to inform the HMRC in order to pay tax through
self-assessment. Therefore, sole trader have to filling the tax return annually.
- Responsibility: 'Sole trader have to register for the National Insurance number if the
business is operated in the UK
+ Sole trader must keep all the business records in terms of sales and expenditure
+ Filling the tax return through Self-assessment yearly
+ Paying the personal income tax based on the profit as well as national insurance in
terms of class 2 and 4
+ It is required that in case the revenue of sole trader exceed £85,000. Sole trader can also
register for VAT voluntarily if it is appropriate with his or her business
+ In case the business related to construction industry, sole trader have to register with
the HMRC for CIS (Construction Industry Scheme)
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- Business name: Sole trader can use his or her own name to name the business and it do
not have to be registered. The name the owner as well as the business must be consisted
in paperwork related to the business
+ The name of sole trader must not contain the terms ‘limited’, ‘Ltd’, ‘limited liability
partnership’, ‘LLP’, ‘public limited company’ or ‘plc’. Also, the name must not be
insulting and as same as the already existed business name. Moreover, the name should
not include sensitive terms or any related to government or local authorities unless there
is permission
Management:
- It is unnecessary for sole trader to answer any questions from board of directors or
business partner
- As sole trader personally own the business, there is no need to form any regulations or
agreement between partners with the purpose of management and operation
- The owner can decide how to run on his or her own business without any involvement
Source of funds
Equity capital Debt capital
- Owner’s money: the owner can contribute to the
business’s equity by his or her own money
- Retained earnings from reinvestment: Profits are
created in the previous trading year and its able to
cover all the daily expense of the sole trader
- Sales of inventory and assets: This source of
fund not only can attract customers but also
release the inventory
- Money borrowed from relatives and friends:
these are common source of fund for sole
trader’s business
- Sponsor from credit card: Credit cards funds
through cash in advance or covering expense
- Bank loans: The owner is required to have
collateral or personal property so as to ensure the
debt
- Grants: It is unnecessary for sole trader to pay
back this source
- Trade credit financing: the sole trader can
receive this fund whenever he or she need but it
requires deadline of repayment.
2. Partnership:
Definition and characteristic
Partnership refers to organizations run by two or more people and share the income with each
other. Partners can represent for each other during the business operation and each individual
personally responsible for the company’s liability.
Characteristic:
Membership: the range of member is from 2 to 100 including individuals must have full
legal compacity to become partner, except people with mental disorder or mental problem,
people under 18 and people do not have the ability to pay for the debt.
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Unlimited liability: All the members are collectively and individually for all the debts of the
business. They have to use their personal property and asset to pay for the liability in case the
asset of the company is not enough to pay for the debt.
Sharing of profit and loss Profits and losses are divided proportionally based on agreement
between members. In case any terms in the contract is broken, the profit as well as losses is
divided equally
Mutual agency All the partners are represent for the company. Each of their action is binding
the company as well as each other.
Voluntary registration The registration to become a member of the partnership is not
mandatory but is recommended. One of the benefits is that it is possible to sue to the court in
case there is a dispute incur internal or external of the company
Continually Partnerships may dissolve upon partners death, bankruptcy or retirement. Or
else, the remain partners could continue the operations by making new agreement.
Contractual relationship It is possible to establish and maintain the relationship between
members by contract
Trader of interest Partners must be given unanimous is there is any transfer of interest
between each other.
Types of partnership
Partnerships can be divided into 2 types which are general partnership and limited
partnership which are general partnership and limited partnership. On the one hand,
general partnership means that all the members are partners, equally unlimited
responsible obligated to the company, and equally sharing profits as well as losses. On
the other hand, limited partnership composes of not only one general partner responsible
for running business operations but also one or more members who do not participate in
business activities and do not have any legal binding.
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Partnership
General
partnership
Limited
partnership
Limited
partnership
Limited
liability
partnership

Management of partnership
General Partnership: There is an equality in the responsibility between partners in managing
the business as well as profit and losses and the legal decision. Moreover, partner can represent
for the company in making decision.
Limited Partnership and Limited Liability Partnership
In terms of limited partnership, partners had unlimited liability with all decision, managing as
well as profit and losses of the company
In terms of limited liability partnership, unlike the limited partnership, partners do not have to
not only take responsible for profit and losses of the firm but also enter in the decision-making of
the business.
Setting up a business partnership
General requirements
Establish an agreement between partners to divided equally responsibility in terms of assets
as well as profits and losses. Moreover, they have to responsible for tax paying for their
shares as well as sharing profit with each other base on agreements. In addition, it is possible
that not only an actual person but also organizations or companies can become partners.
Steps to setting up business:
The first step is deciding the company’s name. In detailed, it is illegal if the name is identical
with the name of the previous companies because of the intellectual property right. The
second step is choosing the representator of the company or a nominated partner with the
purpose of managing tax returns as well as recoding business reference. The last step is
registering the company’s name to the HMRC (Her Majesty Revenue and Customs) to pay
tax later.
Deed of partnership (Article of partnership)
Partnership is an association from 2 to 20 partners. There has to be an agreement about
responsibilities as well as rights of partners (normally known as Deed of Partnership or The
Article of Partnership). Moreover, they must take responsibilities for all the debt of the
partnership.
Source of finance:
Equity Loan
- Savings, stocks and bonds:
- Funds from your personal circle of
family, friends and acquaintances
- Retirement account funds
- Business grant
- Business loan
- Venture capital funding from
investors
- Crowdfunding
II. Incorporated business
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A company refers to a registered organization that is established by an artificial legal person
or a group of artificial legal persons with the purpose of implementing business activities. In
case the business out of funds, the owners are not required to use personal property to pay for
it. The life cycle of incorporated businesses is not tie with the life of the owners. In other
words, the life of the business could be long-lasting. The incorporated business consists of
private limited company and public limited company.
1. Characteristic
Incorporated association: register limited liability of each shareholder
Separate legal entity: There is separation in terms of responsibility between shareholders and
the company. This means that the company does not have to liable with the actions of its
members.
Limited liability: The liability of the members is limited within the amount that they
contributed
Perpetual succession: As the life of the company is not stick with the life of the owner, the
change of shareholders or lack of solvency does not affect the life span of the incorporated
business.
Common seal: Every company should have a common seal which represent for a natural
person
Transferability of shares: The shares can be transferred by the shareholders in the stock
exchange market
Separate property: The personally property of owners of shareholders are separated from
company’s property
Capacity to sue and be sued: A company is able to sue and be sue by a third party
Artificial person: The owner of the company can be a person that is recognized by the law as
a legal artificial person.
Separation of ownership from management: The Board of Director is selected by its
members. However, members cannot involve in the management of daily affairs
2. Differentiate public and private company
Public company Private company
Definition Listed in stock market, sale
share in stock exchange
market which attract more
investors
Only selling shares to
willing investors
Traded on Trade on stock exchange Traded by few investors
Regulations More heavily regulated by
the stock exchange
regulations the because
Unless the revenue of the
company does not exceed
100 million USD as well as
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listed in stock market. 500 shareholders, it does not
have to follow the
regulations by SEC
Advantages Have responsibility of public
the financial report for
potential investors
Having the rights of
refusing to disclose any
information related to the
company’s financial report
Size Public companies are big
companies
Private companies can be
big companies
Source of funds Money from selling shares
and bonds
Private investors and
venture capital.
3. Setting up limited company
a. Checking if the type of business is appropriate to form a limited company
How the business pay tax and be funded based on what kind of business is it.
b. Choosing the name of the company
It is impossible that the chosen name is similar to the one of previous companies. Also, the
name must be ended by ‘Limited’ or ‘Ltd’
c. Choosing directors, a secretary as well as guarantors, shareholders and SPCs
The company must have at least one director but it is unnecessary to have a secretary. To be
specify, the director of a company can be a shareholder or a guarantor. Moreover, the
company need to determine the SPCs who
- Owning more than 25% of the shares
- Having more than 25% of the voting rights
- Having the right of appointing or dismissing the majority of members in the board of
directors
d. Preparing documents related to agreement about business operation
It is necessary for companies to prepare both memorandum as well as article of association:
Memorandum of association
In case of online company registration, the memorandum can be created automatically. In
contrast, companies have to apply the available memorandum template.
It is impossible to have any correction or updating once the company is registered.
Article of association
Companies may either
- Using standard form
- Creating their own and send them when company registration
e. Checking documents to be kept
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According to the UK Government, companies must keep records about the company as well
as financial and accounting records.
Records about the company:
- Directors, shareholders and secretaires
- Results of voting and resolutions of shareholders
- Guarantee of debentures repayment with a specific of time and who to pay
- Guarantee of indemnifying
- Transactions of buying shares
- Loans and mortgages secured by company’s assets
- Register of SPCs
Accounting records
- Earnings and expenditures
- Assets owned by the company
- Debts that the company owe or is owed
- Company’s stocks by the end of fiscal year
- Purchasing and selling goods (including suppliers and buyers)
- The stocktaking you used to work out the stock figure
Financial records
- Receipts, petty cash records, orders and many others representing for the spending of the
company
- Invoices, till roll or sales book for the money received by the company
- Other relevant documents such as bank statement or correspondence.
f. Registering the company
First of all, it is compulsory to provide the official address of the company that have been
registered. In detailed, the address must be a real one and in the same nation as registered.
Next, the company need to choose the SIC (Standard industrial classification) code
describing the natural of its business.
After that, registering to the Companies House. The company can also register with HRMC
after register the company for any related tax.
4. Business operation of limited company
a. The responsibilities of Directors
- Following the regulations of the company
- Reserving company profile as well as documents of changes
- Filing accounts and tax return of the company
- Do not keep secret with other shareholders if the director can earn benefit from any
transactions made by the company
- Pay CIT
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The director can hire a person in charge of the activities listed above. However, the legal
responsible still belongs to the directors. In the case of the directors do not meet the
responsibilities then he or she might be fined, prosecuted or even dismissed.
b. Taking money out of a limited company
Salary, expenses and benefits
Only registered as an employer, it is possible for the company to pay salary, expenditure or
benefit for employees.
The salary payments include both income tax as well as National Insurance so it should be
taken out and pay for the HMRC along with National Insurance contributed by employees.
If anyone in the company uses the company’s belongings for personal purposes then it has to
be reported as a benefit and he or she must pay any tax due
Dividends
Dividend payment is not included in business cost when paying filing CIT.
Dividend must be paid for all shareholders. In order to pay dividend, it is a must to hold a
meeting with the purpose of dividend declaration. After the meeting, all the records must be
kept by the directors.
Tax on dividend
The company do not have to pay for taxes on dividend and it would not be levied on
shareholders unless it exceeds £2.000.
c. Directors’ loan
Directors’ loan incurred when directors or close family members withdraw the amount of
money from the company is higher than the amount of money invested.
Any payments or borrowings that related to directors’ loan must be kept in the director’s loan
account. At the end of the fiscal year of the company, the money that the directors owe the
company or vice versa will be on the balance sheet in the annual count of directors.
d. Changes of the company the needed to be recorded
Changing the company’s registered address
The requirement of changes must be reached to Companies House. If it is approved then
Companies House will inform the HMRC. The new registered address must be in the same
part of the UK as registered before.
Other changes
These changes needed to be informed to the HMRC:
- The directors’ business’ contact detail changes
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- Appointing a secretary or tax advisor
The following changes must be informed to the Companies House within 14 days:
- Where the records is and which records are kept
- Directors and their personal information
- SPCs or their personal information
- Company’s secretary
In case the company want to issue more share, it must be informed to the Companies House
within a month.
Changes approved by shareholders
It is necessary to have votes form shareholders if:
- Changing company’s name
- Dismissing a director
- Change the company’s article of association
Most of the resolution need the majority of shareholder to be passed. In some cases, special
resolution need 75% of agreement to be passed. The changes as well as resolution must be
reported to the Companies House.
Shareholder voting
The amount of share that a shareholder contributed decided whether he or she has the voting
right or not rather than the number of shareholders. The number of shareholders that attend to
the meeting is limited based on the amount of share that they contributed.
e. Company and Accounting records
The company must have responsibility of reserving the documents and records related to the
company itself as well as financial and accounting records (point e in the Steps to setting up a
company). Otherwise, the company can hire an accountant to help the company with taxes.
Moreover, the records must be kept carefully for the HMRC to check whether the company
pay the right amount of tax or not.
The records must be kept in 6 years from the end of the fiscal year of the company. In
contrast, it is possible to reserve the records more than 6 years unless:
- The transactions consists of two or more accounting periods of the company
- Purchasing an asset that it’s life span last more than 6 years
- Late tax return filing
- HMRC start to check the tax return compliance
In case of the records are lost or stolen, the company must inform to the Corporation Tax
office immediately and mention about this situation in the Company tax return.
f. Confirmation statement
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Companies need to check the information of the company registered to Companies House
annually to ensure its correct
Checking company’s information
- Information about register office, directors, secretary as well as the place where the
record is
- Information about the company’s capital statement and shareholders
- SIC code
- SPCs list
Reporting changes
It is possible to report changes in terms of information about capital statement and
shareholders as well as SIC. On the contrary, companies could not report changes using
confirmation statement as it should be filed separately with Companies House including
company’s officer, registered address, where the record is kept and SPCs.
Due dates
The deadline for confirmation statement will be sent through emails or letters to the office.
The due date often a year after the establishment of the company or the filling latest annual
return date. The statement confirmation can be filled exceeding 14 days after the deadline.
There would be penalties up to £5,000 and the company would be removed if there is no
confirmation.
g. Signs, stationery and promotional material
It is required to show the sign that is easy to read and recognize of the company at the office
or anywhere there is business operation of the company.
Besides that, the name of the company must be included in all the business records related to
the company. On the business letters, order forms as well as official website, it is the must to
perform:
- The registered number of the company
- Officially registered address
- The place that the company register in
- Limited company
- Directors’ list
- Shares (must include the amount of money that is paid up which is owned by
shareholders)
5. Source of finance
Debt Capital Equity Capital
- Bank loans
- Personal loans
- Bonds
- Selling shares of stock
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- Credit card debt
III. Legal structure
Sole trader Partnership Public companies Private companies
Liability Unlimited Unlimited Limited Limited
Life span Existence rely on
the existence of the
owner
Existence rely on the
existence of the
owner
Permanent Permanent
Registration HMRC HMRC Companies House Companies House
Tax liability PIT PIT CIT CIT
Legal entity There is no legal
person
There is no legal
person
Legal person Legal person
IV. Duties of director
Organizing: The director needs to divide the works equally and coherently among employees so
as to gain the goal of the company
Planning: The director has the responsibility of setting up the plan in order to evaluate the
internal as well as external environment, as a result, will be able to determine and develop
objectives, scope and field.
Controlling: The director needs to not only ensure that the business operation of the business is
stick to the plan but also set up principals, standards and policies for the business.
Commanding: As a leader of the company, the director responsible for managing, leading,
communicating and promoting the workforce in the most effective way so as to succeed in the
path to achieve the set goal.
Coordinating: The director can not only manage the business by his or her own but also hire an
expert or qualified manager with the purpose of controlling, supporting in business operation as
well as boosting up the willpower of the employees for the most working efficiency.
It is required that directors of 4 types of business which are sole trader, partnership, private
companies as well as public companies have to complete all of their duties. Clearly, they have to
fulfill the OPCCC (Organizing, Planning, Controlling, Commanding and Coordinating). The
obligation is separated equally between directors. Nevertheless, there is only one director in sole
trader while the others have more than one.
In addition, on the one hand, in terms of partnership, the responsibility of the director would be
decided based on the Deed of Partnership. On the other hand, like sole trader, directors of limited
companies have responsible to fulfill the OPCCC, however, they do not have to combine
personal property with business’s equity.
V. Evaluation formation of sole trader. partnership, private and public company
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