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Business Law and Choice of Business Medium

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CHOICE OF BUSINESS MEDIUM This essay shall consider the range of factors that will influence the choice of medium for a newly established business. Various factors need to be considered when deciding whether to set up as a sole trader, a partnership or company. You will make the choice when a new business is set up, but should keep the type of medium under review as the circs (and the law) change. Generally, each medium has some advantages and some disadvantages, so sometimes it can be a hard decision. We will consider: - risk of capital - expense - management - publicity - taxation - trading profits - interest relief - capital gains - inheritance tax - pensions and social security, and - raising finance 1) Risk of capital - all businesses involve a risk of capital, yet the degree of risk depends on: - the nature of the business, - the economic climate, and - the skill of those running the business. The amount of capital which is at risk will also vary since some types of business require a great deal of capital, yet others very little. ...read more.


If the partnership agreement is silent, unanimity is required for the admission of a new partner. d) Legal status: - a partnership is not a separate legal person - partnerships cannot create floating charges - a partnership is not bound by the ultra vires doctrine so is free to change the nature of its business unanimous agreement is needed, although outsiders won't be affected even if there is no unanimity) - partnerships (other than in certain professions) are limited to 20 members 4) Publicity - partnerships are not required to make such info available (although in practice, the partners will be required to show their accounts to any prospective lender). 5) Taxation - trading profits All the income profits of a partnership are taxed as income of the partners whether they are actually paid to them or retained in the business (unless a capital allowance is available). A pship offers less scope for tax planning in relation to income profits than a company. All the income profits are taxed as income of the partners whether they are actually paid to them or retained in the business (unless a capital allowance is available). ...read more.


The benefits to which an empee is entitled to are higher overall than those to which a self-employed person is entitled. 10) Raising finance - it is not as easy to invest capital in a partnership: an investor in a partnership will ideally have to be made a partner if they are to have a stake in the business (which can disrupt the management structure and will also be unappealing for the investor who will then have unlimited liability for debts). A partner who wants to exit his investment will have to sell it in its entirety to the existing partners. Alternatively, an investor could simply lend money to the partnership, yet there will be no capital growth like there would be if he became a partner and took a partnership share. By way of conclusion, the choice of business medium is a decision for each individual based upon his or her business needs. Whilst weight should be given to the above factors in no particular order of priority, they must all be considered in turn and a wise entrepreneur would be well advised to give serious consideration to the above before deciding upon the choice of business medium that best suits his or her particular needs. ...read more.

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