Business Law and Practice: Types of Business – Setting Up A Business
Businesses can be run in two forms:
1. Incorporated business – must undergo formal registration process before they can
legally exist. They have separate legal entities from that of their owners.
o Most common forms of incorporated business are the company and the limited
liability partnership (LLP).
o Established under the Company Act 2006 (CA).
1. Unincorporated business – require few, or even no, administrative steps to be taken to
be formed under the law. Usually treated as being the same legal entity as its owners,
which no separate legal status.
o Most common forms of unincorporated business are the sole trader and
partnership.
4 Main Types of Business:
1. Sole Trader
Basic Concepts
Someone who runs a business on their own as a self-employed person. A sole
trader can operate in any trade or profession.
o E.g. dog walker, hairdresser or lawyer.
A professional, such as a lawyer, are usually known as a ‘sole practitioner’,
sometimes ‘sole proprietors’.
The business will still be sole trader where there are employees/independent
contractors if the sole trader owns the business alone.
Setting Up as a Sole Trader
No formal steps need to be taken to set up as a sole trader.
Related legal matters:
o Must register by HM Revenue and Customs for tax purposes.
o Legal requirements where a sole trader chooses to trader under another
name.
o Planning permission for alterations to premises and/or other specific
licences e.g. liquor licence for restaurant.
o Entering into a lease for business premises.
o Entering into contracts with employees and suppliers.
Method of financing: Debt.
Assets, Liabilities, Profits and Losses
As there is no separate legal entity a sole trader is a person who alone:
o has the right to make all decisions affecting the business;
o owns all the assets of the business (other than any leased from third parties
or obtained under contracts containing reservation of title clauses);
o is responsible for paying income tax on all the profits of the business; and
o has unlimited liability for the debts of the business.
o Earns income from customers/clients and keeps all the profit (less
expenses).
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Businesses can be run in two forms:
1. Incorporated business – must undergo formal registration process before they can
legally exist. They have separate legal entities from that of their owners.
o Most common forms of incorporated business are the company and the limited
liability partnership (LLP).
o Established under the Company Act 2006 (CA).
1. Unincorporated business – require few, or even no, administrative steps to be taken to
be formed under the law. Usually treated as being the same legal entity as its owners,
which no separate legal status.
o Most common forms of unincorporated business are the sole trader and
partnership.
4 Main Types of Business:
1. Sole Trader
Basic Concepts
Someone who runs a business on their own as a self-employed person. A sole
trader can operate in any trade or profession.
o E.g. dog walker, hairdresser or lawyer.
A professional, such as a lawyer, are usually known as a ‘sole practitioner’,
sometimes ‘sole proprietors’.
The business will still be sole trader where there are employees/independent
contractors if the sole trader owns the business alone.
Setting Up as a Sole Trader
No formal steps need to be taken to set up as a sole trader.
Related legal matters:
o Must register by HM Revenue and Customs for tax purposes.
o Legal requirements where a sole trader chooses to trader under another
name.
o Planning permission for alterations to premises and/or other specific
licences e.g. liquor licence for restaurant.
o Entering into a lease for business premises.
o Entering into contracts with employees and suppliers.
Method of financing: Debt.
Assets, Liabilities, Profits and Losses
As there is no separate legal entity a sole trader is a person who alone:
o has the right to make all decisions affecting the business;
o owns all the assets of the business (other than any leased from third parties
or obtained under contracts containing reservation of title clauses);
o is responsible for paying income tax on all the profits of the business; and
o has unlimited liability for the debts of the business.
o Earns income from customers/clients and keeps all the profit (less
expenses).
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