- Partnership allows two or more people to work together
- Bring different skills and resources to the business
- Partnership is fairly easy to establish
- If the partnership suffers a loss but the partners have other employment income, the loss can be used to reduce their taxable income, thereby lowering the income tax payable by the partner
- The partnership is not considered to be separate from its owners
- the partners are personally responsible for liabilities of the partnership
- If the business fails, the partners will be personally responsible to pay all of the debts and obligations of the partnership
- because each partner is an agent for the business and for the other partners, each partner is personally responsible for the actions of the other partners
- If one of the partners makes a bad business decision, or acts negligently which results in the partnership owing a debt, all of the other partners are personally responsible to pay it back.
- Because a partnership is based on the individual partners, and it is not a separate legal entity, if one of the partners dies, the partnership ends. This means that the remaining partners have to re-establish the partnership.
- Because a partnership is not a separate legal entity, it is difficult to buy or sell a partnership interest. Buying or selling a partnership interest will involve rewriting the partnership agreement and determining exactly how the partnership will change.
- Although the resolution of disagreements amongst partners is generally covered under a partnership agreement or case law, it usually is very difficult. There is no Act that exists which sets out rules for settling partnership disputes. If the disagreements are not resolved by the partners themselves, they will usually have to turn to outside help which can be time consuming and costly.
Tax implications
There are tax implications to owning a partnership interest. First, the business income of a partnership is divided between the partners and included on each partners' personal income tax form; the partnership does not file a separate tax form. Second, if the business has suffered a loss, the partners can deduct the loss from any other employment income they receive. This will lower the overall income of an individual partner and reduce the amount of income tax he or she must pay. Third, if the business has made a profit, the profits are taxed at each partners' personal income tax rate. Fourth, because the partnership is not a separate legal entity, the partners cannot take advantage of income splitting or tax deferral opportunities available with corporations.
For more information or advice about partnerships or if you are uncertain about what form of business is best for you, you should contact a lawyer.
Private limited company
A private limited company is one where the liability is limited. Unlike a sole trader where the liability is unlimited, with a limited company the liability is limited to the value of the shares issued. This means that any debts are debts of the company and not of the owners. To form a limited company it must be registered at Companies House and the firm must have various legal documents including a Memorandum and Articles of Association. There need only be one director and they have to prepare annual accounts and submit them to Companies House. Private limited companies can range significantly in size.
- You have limited liability
- Easier to raise larger sums of capital
- More flexible than PLCs
- Opportunities for bringing in more skills
- You can only sell shares privately
- Not very flexible if expansion becomes possible
- More legal formalities than sole traders
Public limited company
Like a private limited company, a plc has shares, but the key difference is that these shares can be bought by anyone freely on a stock exchange. Ownership is therefore open to anyone who wants to buy shares. PLCs have legal requirements in that they have to produce annual reports and accounts and file them with Companies House. There are various other requirements including:
- You must have at least two directors.
- You have a fully qualified Company Secretary.
- You have limited liability
- Easier access to finance
- More funds available for investment
- Public awareness gives status
- You have to publish results
- Others, e.g. auditors have to look at your books
- Greater need to conform to legal procedures
- Owners might lose control
Charitable Organisations
Voluntary, Charitable and similar organisations are usually non-statutory (not part of central government or a local authority) and non-profit making. There are exceptions to this in that some organisations are co-ordinated by workers from statutory services and some either pay staff to assist their work or charge a fee for the service. There are other voluntary organisations comprised of groups of similarly experienced people who wish to share their experiences for mutual support.
- Funding - Opportunity to attract other sources of funding available only to charitable organisations.
- Status - Recognised and highly regarded status and security in terms of its position.
- Mandatory National Non Domestic Rate (NNDR) - 80% mandatory relief from business rates.
- Discretionary NNDR - Possibility of additional relief for the remaining 20% of business rates (at the discretion of the local authority).
- Corporation Tax - Exemption from corporation tax on income (provided the income is used only for charitable purposes).
- Other Fiscal Advantages - Exemption/relief from taxes, including capital gains, income tax and inheritance tax.
- Donations - Tax relief on donations to charities enhancing the value to the charity and encouraging donors to give more generously. (This tax relief relates to voluntary donations not mandatory contributions to the BID scheme).
- Sponsorship - Reliefs for corporate sponsorship, again encouraging support through mutual tax advantage.
- Stamp Duty - Stamp duty not payable on gifts to, and purchases of land and shares by, charities.
- Exemption from, and reduced liability for, certain municipal, provincial and federal taxes.
- The ability to issue income tax credit receipts for donations.
- Charitable status generally provides an organisation with a positive image from the public's perspective.
- Regulation - A registered charity will need to comply with the regulatory requirements of the Charity Commission. It might be said that such regulation is a positive advantage and seen as an important means of safeguarding the assets of the organisation.
- Restriction on Activities – a charity can only undertake charitable activities as defined in charity law. These are limited and could restrict the intended activities of the BID partnership.
- Application - The assets of a charity can only be used for charitable purposes of that charity or transferred to another charitable body for similar purposes. Reversibility is, therefore, difficult.
- Trading - Any non-charitable, commercial or trading activities (unless deemed ancillary) will need to be undertaken by a subsidiary trading company.
Franchises
A franchise is a contract or agreement where a franchisor gives a franchisee the right to start a business under a business system that already exists. Under the franchise agreement, the franchise business usually uses the name or trademark of an existing company and conducts the same type of business as the existing company. The franchisee has a right to use the name or trademark of the existing company and the franchisor gets to have some control over the franchisee's business. The franchisor also has a continuing right to receive payments from the franchisee.
- You are able to operate your own business while still having the security of working with a large company
- You may not have to be an expert at running your own business because you will usually receive support from the franchisor.
- You enjoy the benefit of using the franchisor's reputation. As a result, there is less business risk for you if the franchise has developed a successful product
- It may be easier to borrow money to buy a franchise than to start an independent business.
- Depending on the franchisor and the franchise agreement, the franchisor may maintain a substantial amount of control over new franchises. In typical franchise situations, the franchisor will set the opening and closing times of the franchise, determine what is to be sold and how it is to be sold, and will put restrictions on the ability of the franchisee to sell his or her franchise. You should discuss this before you enter into a franchise agreement.
- Franchisees usually have to pay an upfront fee simply to begin using the business name. To continue using the name, the franchisee will usually have to pay a set fee either every month or every year. These fees can be substantial. In exchange, the franchisee gets to use the franchise name and sell the franchise product. People will know your business name and you will not have to spend time developing a marketing plan or customer recognition of your business.
- There are many complicated legal issues involved with buying and operating franchises. You should consult a lawyer and an accountant if you plan to enter a franchise agreement.
Laws of business
Memoranda and articles of association
The memorandum of association defines the following key points:
The company name
The address of the registered office
A statement of limited liability
A statement of the companies authorised share capital and share price.
What the company will do (the objects)
Statutory Books
Statutory Books are the official records kept by the company relating to all legal and statutory matters
Statutory declaration
Partnership agreements
The Companies Act 1985 and 1989
The Partnership Act 1980
The Business Names Act 1985
Contract, Consumer and Employment Law
Standard Forms Of Contract
Forming An Agreement
Capacity To Contact And Intention To Create Legal Relations
Consideration
Illegality
Duress And Undue Influence
Exclusion Clauses
Express And Implied Terms
Termination Of A Contract
Arbitration In Circumstances Of Dispute