All About Business Ownership
Business plans usually have a section about the business ownership, and the organisational structure of the business. Any investors will want to know who owns the business, who runs the business and who will benefit from the profits of the business. Defining business ownership is all part of the business planning process.
In the UK, a business can be set up in one of five legal forms. These are:
- Sole trader
- Limited company
- Limited liability partnership
- Cooperative (not discussed here)
If you are on your own in business, then you can be a sole trader, but you can also be a limited company. The others are for those building a business with others.
Sole TradersTo set up and run a business as a sole trader, the individual must raise all the finance him or herself. People who run a business as a sole trader often have a desire to remain in total control of their business, and do not wish to share or hand over control to anyone else. However, this can be limiting in terms of the finance raised and also, ultimately, in the size that the business can grow to. It may be that, by remaining as a sole trader, the owner is limiting the ambition and scope of the business, which might otherwise grow much larger and reap much greater benefits for the business, and its owners.
Sole traders have no legal duties to attend to when setting up a business. However, if and when the business exceeds a certain amount of turnover, the business will have to be registered for VAT. In terms of business ownership the sole trader owns the business. Sole traders are liable for all the money that the business owes (without limit). That includes all personal assets, such as a car, a house and all its contents.
PartnershipsIn a partnership two or more partners pool together to form a business, and they can all contribute to the financing of the business. These do not necessarily have to be equal shares. Each partner is jointly liable for all the debts and obligation that any of the partners incurs. Rather like a sole trader, the partners are liable for all the money that the business owes (without limit) – but in the case of a partnership it includes debts racked up by any single partner. Thus, a fundamental aspect of a partnership business is trust.
Like sole traders, partnerships have no legal duties to attend to when setting up a business, but must register for VAT when necessary. Partnerships usually formulate and sign a Deed of Partnership, but there is no standard format for this, and partnerships often create their own. In terms of business ownership the partners share ownership of the business.
Limited CompaniesLimited companies, as the name implies, have a limit to the debt liability. Directors’ personal assets are not touched if trading has been completely legal (this applies to limited liability partnerships too).Private limited companies can sell shares to family, friends and associates. Public limited companies can sell shares on the stock market to raise finance. Limited companies have to comply with some regulations. They must:
- Have a Memorandum of Association
- Have Articles of Association
- If these two items are acceptable then they are awarded a Certificate of Incorporation by the Registrar of Companies, and they get a company Registration Number.
- Send a copy of annual accounts to the registrar
- Hold an Annual General Meeting and invite shareholders to attend.
Limited companies are owned by the people who own shares in the company. Of course, as stated before a limited company can be owned by a single individual who owns all the shares. Limited companies can choose to use part of their profits to pay a dividend to shareholders. Therefore a single owner would receive the whole dividend payment, and in terms of business ownership, would own the whole company.
Limited companies with more than one owner are usually managed by the owners, who are called directors. There is usually a Managing Director, and other director roles (one of which may well be the MD, and others may double up) are:
- Finance director
- Sales and marketing director
- Production director
- Personnel director
These titles can vary. In a small limited company the directors often do the work as well, especially in the early stages.
Remember also that businesses can change the way they are set up. Sole traders can become partnerships, and both of those can become limited companies.