Identify the Three Main Types of Business Organisations Recognised in Scots Law.
1 Identify the three main types of business organisations recognised in Scots law. A. Sole trader
The most popular style of small business enterprise, it’s simple to set up and does not require any formalities. Sole trader often is a one person who manages and owns the company. They take all the profits, but must also include all losses. Indeed, if the only operator becomes insolvent personal assets may be used to satisfy creditors, such as a house, car, etc. They are personally responsible for all indebtedness of the company and have unlimited liability.
B. Partnership
C. Incorporated Bodies
Private Limited Company (LTD)
Public limited company (PLC)
2 Clarify for Gurpreet and Samuel, by distinguishing the difference between these organisations by identifying and explaining the advantages and disadvantages of the legal requirements for setting each of these up.
| Advantages | Disadvantages | Sole trader | * Small – cheap to run in comparison with other forms of business enterprise * Can use their own name as the name of the business – Business Names Act 1985 * Fairly straightforward to establish * All profits go to trader * Privacy | * Because all income goes to the owner, money tends to be squandered * Little cash used to regenerate business * Owner personally liable for all debts! | Partnership | * No formulation * Written contracts are advisable to ensure all partners know exactly what their responsibilities are * Scotland – separate limited personality – making it an artificial person (a body that the law recognises as a person in its own right; it can take legal actions and defend them) * Shared responsibilities * Privacy * Incentive to do well * Shared profits | * Joint and several liability * Partnerships require agreement between partners, on everything. This can lead to deadlock, eventually killing the partnership if they cannot be resolved | Private Limited Companies LTD | *
The most popular style of small business enterprise, it’s simple to set up and does not require any formalities. Sole trader often is a one person who manages and owns the company. They take all the profits, but must also include all losses. Indeed, if the only operator becomes insolvent personal assets may be used to satisfy creditors, such as a house, car, etc. They are personally responsible for all indebtedness of the company and have unlimited liability.
B. Partnership
C. Incorporated Bodies
Private Limited Company (LTD)
Public limited company (PLC)
2 Clarify for Gurpreet and Samuel, by distinguishing the difference between these organisations by identifying and explaining the advantages and disadvantages of the legal requirements for setting each of these up.
| Advantages | Disadvantages | Sole trader | * Small – cheap to run in comparison with other forms of business enterprise * Can use their own name as the name of the business – Business Names Act 1985 * Fairly straightforward to establish * All profits go to trader * Privacy | * Because all income goes to the owner, money tends to be squandered * Little cash used to regenerate business * Owner personally liable for all debts! | Partnership | * No formulation * Written contracts are advisable to ensure all partners know exactly what their responsibilities are * Scotland – separate limited personality – making it an artificial person (a body that the law recognises as a person in its own right; it can take legal actions and defend them) * Shared responsibilities * Privacy * Incentive to do well * Shared profits | * Joint and several liability * Partnerships require agreement between partners, on everything. This can lead to deadlock, eventually killing the partnership if they cannot be resolved | Private Limited Companies LTD | *