Concept of education

Incorporation: Is a legal process of forming an entity recognised in law

• Unincorporated Businesses:

Are not a separate legal entity. So in law, there is no difference between the owner(s) and the business meaning that any legal action is effectively taken against the owner(s)

• Incorporated Businesses:

The owner and the business are a separate legal entity. So in law, there is a difference between the owner(s) and the business, meaning that legal action can be taken against the business.

Liability: Being legally responsible for any debts or financial commitments of a business

• Limited: The owners can only lose the money they have invested in the business, meaning that their risk is minimised as none of their personal possessions can be lost

• Unlimited: The owner is responsible for all the debts. These debts have to be paid even if the business hasn't got the money so they may have to sell their own assets to raise the money. 

1. Sole traders:

Definition:

• Is the most common form of business organization. It is a business owned and operated by just one person 

• Is unincorporated - legally the owner ius the business

• Has unlimited liability

• The owner is the sole proprietor

• There are few legal requirements to set it up. The only common legal regulations which must be followed are:

Concept:

• A form of business in which two or more people agree to jointly own a business. 

• Is a group or association of at least two people who agree to own and run a business together.

• The partnership would contribute to the capital of the business, will usually have a say in the running of the business and will share any profits made.

• Can be set up very easy. 

Partnership agreement:

• Is the written and legal agreement between business partners. It is not essential for partners to have such an agreement but it is always recommended. 

• Without this document, partners may disagree on who put most capital into the business or who is entitled to more of the profits. 

• An agreed legal document that outlines the rules by which a partnership will be run.

• It outlines:

  • Who the partners are

  • How much each partner has invested

  • How major decisions will be made

  • How profit should be shared

  • The process when a partner leaves or joins

Private Limited Companies:

Is a company owned by shareholders. They are separate legal units from its owners, meaning they are incorporated businesses. 

Public Limited Companies:

• More suitable for very large businesses

• Public limited companies ARE NOT IN THE PUBLIC SECTOR of industry. They are not owned by the government but by private individuals and as a result they are in the private sector

• In UK = “plc”