1.4 Choosing the Appropriate Legal Structure for the Business 1 STARTING A BUSINESS 1.4 LEGAL STRUCTURE Talking rubbish! Who sells both a certain type of fish and the base of shoes? What do you get when you take half a dance partner and add half a premiership? If three’s a crowd what is two?
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1.4 Choosing the Appropriate Legal Structure for the Business 1 S TARTING A B USINESS 1.4 L EGAL STRUCTURE Talking rubbish! Who sells both a certain type.
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1.4 LEGAL STRUCTURE
1.4 Choosing the Appropriate Legal Structure for the Business
1 STARTING A BUSINESS
Talking rubbish!Who sells both a certain type of fish and the base of shoes?What do you get when you take half a dance partner and add half a premiership?If three’s a crowd what is two?
Sarah has always dreamt of being her own boss and at the age of just 22 an opportunity arose. Patricia, the owner of the gift shop where Sarah worked, was due to retire and close the business that she had operated as a sole trader for over 40 years. Sarah wondered whether
she had the necessary skills to run the shop herself and finally plucked up the courage to talk to her boss about her buying the shop.
Question Time1. What is meant by the term ‘sole trader’. (2
marks)2. Explain one advantage of Patricia running the shop as a sole
trader. (2 marks)3. Explain one disadvantage of Patricia running the shop as a sole
trader. (2 marks)4. Identify and explain three skills Sarah would need to operate the
shop as a sole trader? (6 marks)
1.4 LEGAL STRUCTURE
PARTNERSHIPS
A partnership is where two or more people run the business
Each partner is equally responsible for debts incurred.
Each partner will take a share of the profits
Each partner usually shares in the decision making.
‘Sleeping’ partners invest in, but do not run, the business.
Partnerships have unlimited liability – can you define this term?
How many businesses can you name with ltd after its name?
TEAM CHALLENGE
Instructions
Split class into teams of 3
Each team should have 3 sheets of paper, preferably 3 different colours
Each sheet represents one type of ownership e.g. blue might be a sole trader, yellow a partnership and red a company
Each team member takes one sheet and writes down something about that type of ownership
Fold it over and pass on to next person
Keep doing this until the sheets have been passed to each person 3 times
Winning
Each sheet should now have 9 statements on it
Count up how many correct but different points have been made
The team with the most points wins
1.4 LEGAL STRUCTURE
CHOOSING THE APPROPRIATE LEGAL STRUCTURE
1.4 LEGAL STRUCTURE
Sarah has spoken to Patricia about her idea of buying the shop and was delighted by Patricia’s response. Patricia was thrilled to think the
business she had built up would continue to exist after her retirement and started the process of valuing the business. That night Sarah told
her boyfriend Bobby of her idea. Bobby had just been made redundant and offered to share the business with Sarah, thinking they could set it
up either as a partnership or a limited company.Question time1. What is meant by the term ‘partnership’? (2
marks)2. What is meant by the term ‘limited company’? (2 marks)3. Explain 2 advantages of Sarah accepting Bobby’s offer of sharing
the business. (4 marks)
4. Explain 2 drawbacks of Sarah accepting Bobby’s offer of sharing the business. (4 marks)
CHOOSING THE APPROPRIATE LEGAL STRUCTURE
1.4 LEGAL STRUCTURE
Sarah has arranged to meet with a small business adviser at her local business link. She has decided to take advice on the most appropriate
legal structure.
Question time1. The business adviser suggests that the most appropriate legal structure for Sarah would be a Limited Company. To what extent do you agree? Justify your answer. (9 marks)
Plan your answer!What should your structure be?
Review mark scheme
Over to you! Time to show off what you have learnt.
1.4 LEGAL STRUCTURE
THE CONSEQUENCES OF INCREASING THE NUMBER
AND RANGE OF STAKEHOLDERS
Sole Traders Partnerships
Ltd.
Can you define the term stakeholder?How does the legal structure of a business influence the number and
range of stakeholders?
NUMBER CIPHERS-LEGAL STRUCTURE
A=1, B=2, C=3 etc. You have two minutes to work out the following terms:
12 9 13 9 20 5 4 12 9 1 2 9 12 9 20 25
16 1 18 20 14 5 18 19 8 9 16
19 15 12 5 20 18 1 4 5 18
9 14 3 15 18 16 15 18 1 20 9 15 14
19 8 1 18 5 8 15 12 4 5 18
End
1.4 LEGAL STRUCTURE
SAY WHAT YOU SEE
1.4 LEGAL STRUCTURE
2 MINUTE TEST
State 2 advantages of being a sole trader
State 2 disadvantages of being a partnership
What 2 items must a private limited company provide to Companies House?
State 2 benefits of being a private limited company
State 2 stakeholders that will be affected by changing from a sole trader to a Ltd. company