BUSINESS,
WORK AND EDUCATION ABROAD
WHAT ARE ENGLISH COMPANIES LIKE?
FORMS OF BUSINESS IN THE UNITED KINGDOM ADVANTAGES AND DISADVANTAGES
Truth is rarely pure and never univocal. A person carries love for himself all his life long.
Oscar Wilde
As the United Kingdom is a country where market economy was established centuries ago, it would be interesting to look at British forms of business organisation. The UK economy is mixed, that means that there exist both private and public sectors, the former being by far larger than the latter. Four major types of business represent the private sector: sole trader (sole proprietor), partnership, limited company and unlimited company. Limited companies in turn can be private limited and public limited. The public sector consists of nationalised companies. Let us review all of these forms in greater detail to identify their main features, advantages and disadvantages. The classification of business forms is illustrated by the following scheme:
Sole trader (sole proprietor)
The proprietor is the sole owner of a business and has full control of it. He is personally liable for all business debts, i.e. he carries an unlimited liability. This means that if his business fails, not only business assets are to be sold to cover outstanding debt, but also the owner's personal property. It is easy to start a sole trader's business at any time, as there are no legal formalities to complete before commencing trade. For a small business there are no statutory requirements for formating accounting records and no need for an annual audit. In terms of taxes, sole traders may be required to register for Value Added Tax (VAT) and pay- as-you-eam (PAYE — a system of income tax deducting and National Insurance contributions for all organisations that have employees) purposes, and maintain corresponding records. They are required to submit accounts and tax computations to the Inland Revenue — a government agency that controls individuals' and companies' tax payments. Sole traders and partnerships are dominant forms in the small business segment.
Partnership
Partners jointly own a business and each partner is personally liable for the firm's debt. If any of the partners have limited liability (in a limited partnership) in a worse-case scenario they can lose only the capital they invested in the business (limited partnership was established by the Limited Partnership Act of 1907; the use of this form of partnership has not been extensive due to the ease of incorporating a private company). However, they cannot actively run the business and are therefore called "silent" partners. There
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are limitations to the number of partners: minimum of two and maximum of twenty (there is no maximum for accountants and solicitors). The partners are free to choose any name for the firm; however, "limited" must not be the last word of the name. Like a sole trader, a partnership is not obliged to publish its accounts or have them audited. It shares requirements similar to those a sole proprietor does in terms of VAT and PAYE. A partnership may be created without any legal formalities based solely on the Partnership Act of 1890. However, to prevent possible future discord among partners, it is usual practice to draw up an agreement that clarifies the following issues:
profit-sharing arrangements;
capital contributions;
voting rights;
admission or expulsion of a partner;
withdrawal from a partnership.
The next forms of business are commonly named companies. All issues regarding formation, registration and operation of companies are regulated by the Companies Act of 1985, amended as of 1989 (hereafter — the Companies Act).