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What is one advantage of being a sole trader?
What is one advantage of being a sole trader?
The Department of Business and Trade is the only name it has been called since its inception.
The Department of Business and Trade is the only name it has been called since its inception.
False
What is the primary role of Companies House?
What is the primary role of Companies House?
To maintain companies' official records.
In the UK, the three main forms of running a business are the sole trader, the partnership, and the __________.
In the UK, the three main forms of running a business are the sole trader, the partnership, and the __________.
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How many partnerships are estimated to exist in the UK as of 2022?
How many partnerships are estimated to exist in the UK as of 2022?
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Match the following departments with their corresponding years of operation:
Match the following departments with their corresponding years of operation:
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There is a common system of Company Law across England, Wales, Scotland, and Northern Ireland.
There is a common system of Company Law across England, Wales, Scotland, and Northern Ireland.
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What percentage of businesses in the UK are sole traders?
What percentage of businesses in the UK are sole traders?
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Which type of company has members liable to contribute a guaranteed amount?
Which type of company has members liable to contribute a guaranteed amount?
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The rise of the company's corporate economy has led to weaker governance and accountability.
The rise of the company's corporate economy has led to weaker governance and accountability.
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What term refers to the directors’ tendency to focus on short-term goals due to frequent evaluations?
What term refers to the directors’ tendency to focus on short-term goals due to frequent evaluations?
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Companies must commit themselves to ______ objectives if they are classified as community interest companies.
Companies must commit themselves to ______ objectives if they are classified as community interest companies.
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Match the following types of companies with their descriptions:
Match the following types of companies with their descriptions:
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What does S172 require directors to consider?
What does S172 require directors to consider?
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Only shareholders have a legitimate interest in a company's affairs according to corporate governance debates.
Only shareholders have a legitimate interest in a company's affairs according to corporate governance debates.
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What significant event in 1986 led to the corporatization of the City?
What significant event in 1986 led to the corporatization of the City?
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What is the main source of company regulation in the UK?
What is the main source of company regulation in the UK?
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Directors’ duties are codified in Part X of the Companies Act 2006.
Directors’ duties are codified in Part X of the Companies Act 2006.
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What document sets out the rights and duties of directors?
What document sets out the rights and duties of directors?
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A company that issues shares in return for equity capital pays shareholders a share of its profits known as __________.
A company that issues shares in return for equity capital pays shareholders a share of its profits known as __________.
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Match the following types of companies with their characteristics:
Match the following types of companies with their characteristics:
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What is one advantage of a public company?
What is one advantage of a public company?
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Private companies do not need to have any directors.
Private companies do not need to have any directors.
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What is the minimum percentage of shareholders needed to change the constitution of a company?
What is the minimum percentage of shareholders needed to change the constitution of a company?
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The contractual agreement between shareholders that regulates their powers is known as a __________.
The contractual agreement between shareholders that regulates their powers is known as a __________.
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Match the following financing methods with their descriptions:
Match the following financing methods with their descriptions:
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Which of the following is NOT a characteristic of public companies?
Which of the following is NOT a characteristic of public companies?
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A company's Articles of Association describes how the company will be managed.
A company's Articles of Association describes how the company will be managed.
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What rules must public companies listed on the London Stock Exchange comply with?
What rules must public companies listed on the London Stock Exchange comply with?
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The rise of __________ has led many listed companies to become privately owned.
The rise of __________ has led many listed companies to become privately owned.
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What is a key advantage of operating as a sole trader?
What is a key advantage of operating as a sole trader?
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In a partnership, each partner has limited liability for the firm's debts.
In a partnership, each partner has limited liability for the firm's debts.
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What document governs the operation of a company?
What document governs the operation of a company?
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A company must be formed by __________.
A company must be formed by __________.
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Match the following business structures with their characteristics:
Match the following business structures with their characteristics:
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A partnership has a separate legal personality.
A partnership has a separate legal personality.
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What must sole traders disclose on their business stationery?
What must sole traders disclose on their business stationery?
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In a limited partnership, at least one partner has __________ liability.
In a limited partnership, at least one partner has __________ liability.
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Match the following business names with their definitions:
Match the following business names with their definitions:
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A partnership is formed when two individuals agree to share losses only.
A partnership is formed when two individuals agree to share losses only.
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Why might partners find it harder to raise finance compared to companies?
Why might partners find it harder to raise finance compared to companies?
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Partnerships are governed by the __________ Act 1890.
Partnerships are governed by the __________ Act 1890.
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What role do shareholders have in a company?
What role do shareholders have in a company?
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Study Notes
Aims of the Topic
- Provide background information on UK business structures.
- Introduce key legal structures for UK businesses.
- Highlight features and differences between legal structures.
- Evaluate advantages and disadvantages for different businesses.
- Offer context for studying company law.
Overview of the Topic
- General background information.
- Legal business structures in the UK:
- Sole traders.
- Partnerships.
- Companies.
- The rise of the corporate economy and company theory's significance.
Relevant Government Departments
- Department of Business and Trade (DBT) - current (Feb 2023).
- Various previous iterations with differing names (DBEIS, DBIS, DBERR, DTI).
The Registrar of Companies (Companies House)
- Executive agency under the DBT.
- Separate Registrars for England & Wales, Scotland, and Northern Ireland.
- Duties include:
- New company formation.
- Maintaining company records.
- Receiving annual accounts.
- Publicly accessible company files.
Impact of Brexit
- Common UK Company Law for England & Wales, Scotland, and Northern Ireland.
- EU harmonisation, especially for listed companies.
- Differences from other European systems, particularly regarding board structure and director appointment.
Three Generic Business Structures
- Sole trader (most common).
- Partnership.
- Company.
- Types exist within these structures (e.g., limited liability partnerships).
- Fewer other notable legal structures.
Legal Structures in the UK
- The three main types: sole traders (56%), partnerships (6%), and companies (37%).
- Figures are 2022 DBEIS estimates.
- One business could consist of multiple companies.
Business Names
- Freedom in choosing names, apart from a few restrictions.
- Disclose name on stationary and premises.
- Restrictions on identical/similar names; some words may require permission.
Deciding on a Legal Structure - Key Considerations
- Ease of management: administrative requirements, staff, costs.
- Ease of raising finance: market conditions & ability to scale.
- Risk protection: personal liability exposure.
A. The Sole Trader
- Owner is the business; includes freelancers & self-employed contractors.
- Advantages: Convenience and control, potential tax/NI benefits.
- Disadvantages: Unlimited personal liability; difficulty expanding.
B. The Partnership
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Two or more individuals sharing business profits.
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Features: firm structure without separate legal personality; shared assets, profits, losses. All partners are agents of each other and have unlimited liability.
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Formation: Agreement to share business profits.
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Operation: Collective management; governed by partnership agreement.
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Regulation: Partnership Act 1890 (generally permissive).
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Advantages: Additional capital/expertise, shared management. Easy to set up (arises automatically).
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Disadvantages: Lack of separate legal personality; potential organizational/practical difficulties. Partner death/bankruptcy can terminate. Unlimited joint/several partner liability; harder to raise finance.
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Special types: Limited Partnership (LP) and Limited Liability Partnership (LLP).
C. The Company
- Separate legal personality, distinct from owners.
- Purpose: Shield owners from personal liability for company debts.
- Management: Directors appointed by shareholders.
- Ownership: Members (or shareholders) share profits.
- Liability: Limited liability for shareholders (up to their investment).
- Distinction: Shareholders own, directors manage.
Forming and Operating a Company
- Registration is necessary to form a company.
- Key players: Shareholders, directors, employees, creditors, customers, community.
- Operation: Directed by directors, governed by constitution (Articles of Association).
Company Regulation
- Main source: Companies Act 2006.
- Other legislation: Insolvency Act 1986, Directors Disqualification Act 1986.
- Common law, contractual agreements (e.g., Articles of Association, shareholders' agreements, directors' service contracts).
- Codes of conduct.
Directors of a Company
- Appointed/removed by shareholders.
- Agents of the company, manage for shareholder benefit (s.172 CA 2006).
- Codified director duties in Companies Act 2006, Part X.
Company Constitution (Articles of Association)
- Sets out directors' and shareholder powers, regulates company affairs.
- Public document; crucial for transparency.
- Shareholders can amend the Articles (special resolution - 75% majority).
Financing a Company
- Loan: Company pays interest, potentially secured.
- Equity: Company issues shares, shareholders receive dividends.
- "Share capital" refers to the issued shares.
Shares and Shareholders
- Shareholders have voting rights, rights to profits.
- Shares' designated/nominal value; voting rights.
- Share classes exist.
Public and Private Companies
- Public Companies (plc): Shares traded publicly, stringent regulations (minimum share capital, directors).
- Private Companies (ltd): Shares not traded publicly, less regulation.
Advantages of Public Companies
- Easier share trading, potentially higher value.
Disadvantages of Public Companies
- Subject to greater regulatory scrutiny.
Public Company Financing and Listing
- Raise equity from initial public offerings (IPOs) or subsequent issues.
- Reasons for listing include raising capital and enabling shareholder sales.
Private Equity
- Growing trend of private investment in companies.
- Avoidance of public regulation.
Governance of Public Companies
- Subject to listed stock exchange rules, city codes on takeovers, and corporate governance codes (e.g., updated Cadbury Report).
Other Company Types
- Unregistered, unlimited, guarantee-limited, community interest companies.
Rise of the Company
- Dominant form of business organization, esp. large businesses.
Importance of Company Law
- Understanding the law and its potential development.
- Assessment of legal/economic policy effectiveness.
Company Theories
- Company as shareholders' property.
- Company as contracts nexus.
Corporate Governance Debates
- Director remuneration.
- Stakeholder vulnerability.
- Legitimate interests in company affairs (employees, community).
Corporate Social Responsibility
- Risk-taking, outsourcing and tax avoidance.
- Beyond profit maximization.
- Corporate citizenship.
S172 CA 2006
- Directors' duty to consider company impact on stakeholders beyond shareholders.
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Description
This quiz provides essential insights into various legal structures for businesses in the UK, including sole traders, partnerships, and companies. Explore the advantages and disadvantages of each structure while gaining a deeper understanding of company law. Ideal for learners seeking to grasp the complexity of the corporate economy.
