The Unlimited Company

Unlimited companies are less common but sometimes they are useful entities, which combine characteristics of both companies and unincorporated businesses (sole trader or partnership). They are treated as companies for taxation purposes (they pay corporate tax instead of income tax), but the liability of theirs shareholders is unlimited. There are certain businesses, regulated by professional bodies, which are required to be unlimited companies.

Nationalised Company

Nationalised companies are established by Acts of Parliament. Usually they are natural monopolies, although there are some exceptions, such as the British Broadcasting Corporation (BBC), which competes with independent radio and TV stations. The accounts of nationalised companies go directly to the Parliament for inspection.

Now let's consider the advantages and disadvantages of the reviewed forms of business organisation.

Sole Trader/Partnership

Advantages:

• Easy to start up.

• No legal formalities (partnerships, however, should have a partnership agreement).

• Relative freedom from legislative control and more secrecy. No requirement to file or publish audited accounts or other information concerning the business with the exception of accounts for VAT and PAYE and Inland Revenue tax return.

• No requirement to be audited.

• Taxed as self-employed, which may have tax advantages in the first three years of operation.

• Low National Insurance contributions.

• More favourable tax treatment.

• Financial flexibility with regard to sharing profits.

Disadvantages:

• Some suppliers do not deal with sole traders and partnerships due to lack of statutory and financial control.

• Unlimited liability. The sole proprietor is liable for all business losses; he can lose all his assets and become a bankrupt. Partners are jointly liable for business debts.

• Profit tax paid at personal rates, top rate being 40% whether or not withdrawn from business.

• Need to make independent pension provision -less advantageous rules than for companies.

• Raising finance can be difficult.

• No statutory protection of a business name.

Limited Company

Advantages:

• Lower tax rate on profits retained in business.

• Limited liability. Shareholders' liability limited to the amount of contributed capital.

• Higher confidence from suppliers and bankers; easier to raise finance for the business.

• Ideal form for expansion.

• Protection of companies' names.

• Tax efficient ways of getting shares into the hands of employees via employee share schemes.

• The ownership and management can be split.

• Company pension scheme can provide greater benefits than self-employed arrangements.

Disadvantages:

• Limited liability could be negated in practice, as director/ shareholders may have to give personal guarantees to third parties.

• Disclosure of information on the company through submitting audited accounts, annual reports, etc.

• Tight regulation by the Companies Act, Insolvency Act 1986, Company Directors' Disqualification Act 1986.

• High set-up costs and annual operating costs.

• High National Insurance contributions.

• Less flexible profit-sharing arrangements.

• Statutory records to be kept.

• State duty generally payable on transfers of shares.

• Double charge to capital gains tax.

• Firstly, the company is charged on gains made by selling its assets.

• Secondly, the shareholders are charged when realising their shares in the company.

So, all forms of business in the United Kingdom have their pros and cons, which must be carefully considered before creating a new enterprise. The right choice of a business form is the first step to success.