Businesses come in different shapes and sizes. Some are very simple indeed providing a single service to a lot of people, such as a window cleaning business or a dog walking service.
A business can be established by an individual as a part-time, enjoyable hobby taking up a couple of hours per week, for example, growing and selling potted plants.
While this is a business of sorts, it involves none of the expected formalities of business method and structure and requires hardly any accounting records other than perhaps a notebook to jot down costs and sales, and perhaps not even that.
As a business grows, however, it gets more complicated, more money is at stake and more stakeholders become involved.
In the beginning a micro-business is likely to be directly linked to the owner’s bank account. As the business grows the owner will want to separate the business from his or her personal finances, and the needs of customers, suppliers and employees will all require it to be treated on a more formal basis. This is where the business becomes something in its own right, with its own bank account and identity.
In the UK, different types of business must comply with different statutory and regulatory requirements. Other countries and legal regimes have their own ways of running business corporations, and their own laws, rules and regulations. If you are studying this course from outside the UK, this would be a good point to research the requirements in your host country.
A limited company (and similar forms of business entity in other parts of the world) is recognised in law as incorporated; in other words with the same ability to enter into legal agreements, to maintain its own identity and finances distinct from its owners, to be sued and be responsible (with very few exceptions) for all it does as if the company was itself a person. The word ‘limited’ is included in a company’s name because it indicates that the financial responsibility of the owners of the company (the ‘shareholders’) is limited to the amount of their money (‘capital’) already paid into the company’s resources and (again, with certain exceptions) that the shareholders cannot be held financially responsible for any losses that are incurred, or unlawful acts that are committed, by the company. This concept of limited liability underpins what has become, by far, the most common and important legal form of business worldwide.
Limited liability means that an individual will not lose all their belongings and money if a business fails, they would only lose the amount of money invested in the company.
In the UK, a limited company is given its legal substance by the depositing of certain documents and information with the Registrar of Companies, the government-appointed official based at Companies House. In the UK, there are three such establishments: in Cardiff (registering companies in England and Wales), in Edinburgh (companies in Scotland) and in Belfast (companies in Northern Ireland).
The required legal documents include:
Allow about 15 minutes
There are a number of different types of business structure, some limited companies and some not.
Write down the types you are aware of. We don’t expect you to know all these already, so don’t worry if you don’t feel you know any at this point.
We will not be dealing with all the business structures.
Here we have listed the most common types of structure, how many did you get?
This first group are types of limited company
This second group lists business structures that are not classed as companies.
Whilst not a structure in its own right, it is worth mentioning registered charities. The rules are set by The Charities Commission. The charity may use any of the structures already mentioned plus:
Charity trustees are the people who share ultimate responsibility for governing a charity and directing how it is managed and run. They may be called trustees, the board, the management committee, governors, directors or something else.
Don’t worry if you did not write any of these down in your answer. You probably recognised some of the structures here, and there were probably some you may not have heard about – in the next section we will simplify these structures for you.
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