Contract Law - Business Advisory Leaflet
Business Advisory Service
Legal responsibilities for business owners
Advise for new business owners about:
* Legal status and risk involved * Contract Law * Consumer legislation
Legal Status
When starting up a business, one should decide which legal status to choose. Each legal status has its own different responsibilities and there are some risks involved.
There are three types of legal status: sole trader, partnership and limited companies (Ltd & Plc).
* Sole trader
Sole trader businesses are owned by just one person. The owner may employ other people or work on its own. Sole traders have unlimited liability, this means that the business does not have a separate legal identity from its owner. Such businesses can trade under the business’ name or the owner’s name. Sole trader businesses do not need to be registered, but the owner needs to make sure that the name is neither the same nor very similar to another business. Regarding the name of the business, words such as ‘Royal’, ‘International’ or ‘Authority’ cannot be used without being entitled. All the profits made by the business will go directly to the owner and the decisions are made by him. Owners will have to keep record of the sales and have an annual self-assessment tax.
Many sole traders business are often small businesses such as window cleaners, hair-dressers, gardeners or corner shops. This kind of business is easy to set up and do not require a huge investment.
One of the risks that involve being a sole trader is that as there is unlimited liability the owner is responsible for all the business debts. Also, the owner cannot share the workload and it is difficult to take holidays or sick leave. Furthermore, all the business profits will be taxed as income.
* Partnership
Partnerships have from 2 to 20 owners. They have unlimited liability, like the sole traders. A legal document called Partnership Agreement sets out the duties and responsibilities
Legal responsibilities for business owners
Advise for new business owners about:
* Legal status and risk involved * Contract Law * Consumer legislation
Legal Status
When starting up a business, one should decide which legal status to choose. Each legal status has its own different responsibilities and there are some risks involved.
There are three types of legal status: sole trader, partnership and limited companies (Ltd & Plc).
* Sole trader
Sole trader businesses are owned by just one person. The owner may employ other people or work on its own. Sole traders have unlimited liability, this means that the business does not have a separate legal identity from its owner. Such businesses can trade under the business’ name or the owner’s name. Sole trader businesses do not need to be registered, but the owner needs to make sure that the name is neither the same nor very similar to another business. Regarding the name of the business, words such as ‘Royal’, ‘International’ or ‘Authority’ cannot be used without being entitled. All the profits made by the business will go directly to the owner and the decisions are made by him. Owners will have to keep record of the sales and have an annual self-assessment tax.
Many sole traders business are often small businesses such as window cleaners, hair-dressers, gardeners or corner shops. This kind of business is easy to set up and do not require a huge investment.
One of the risks that involve being a sole trader is that as there is unlimited liability the owner is responsible for all the business debts. Also, the owner cannot share the workload and it is difficult to take holidays or sick leave. Furthermore, all the business profits will be taxed as income.
* Partnership
Partnerships have from 2 to 20 owners. They have unlimited liability, like the sole traders. A legal document called Partnership Agreement sets out the duties and responsibilities
References: Dooley, D., Goymer, J., Guy, P., Richards, C. and Richards, N., 2007. BTEC National Business Book. 2nd Edition. Heinemann Law Teacher Trading Standards (2009). Buying Goods – Consumer Rights. Available at: http://www.tradingstandards.gov.uk/kent/factsheets/FS1NEW%20nov07%20goods.pdf [Accessed on 17/03/2013] Letter references: Legislation UK. Sale of Goods Act 1979. Available at: http://www.tradingstandards.gov.uk/kent/factsheets/FS1NEW%20nov07%20goods.pdf [Accessed on 10/03/2013] Trading Standards (2009)