There are many ways in which a business may be owned under the legal system of England and Wales.

Different types of ownership are suitable for organisations depending on the degree of control the owners wish to have over the business. The choice of ownership method also relates to the organisations ability to raise funds for the business activities. The ownership method also alters the rules under which the company must be administered.

Because ownership is a key part of business planning, it is essential to take into consideration:

The legal obligations for the owners. Appropriate insurance. Financial forecasting.

The three main forms of ownership for starting business are: Sole-trader, Partnership and Limited Company.

Sole trader

This is a business where any one person is the owner. Their business is unincorporated so the owner is ultimately personally liable for the business. Sole traders are able to control the business – make all of the decisions. This makes the business highly adaptable. However, raising the capital for such businesses may be quite difficult because it is a risky option for investors.

These businesses are often quite small; however, the number of them is very large. Examples of these businesses are mostly found in the service sector such as electrical repair, retail shops, hotels and driving instructors.

The business is easy to set up, there is no formal procedures and operations can commence immediately (unless there is special permission required). The owner is able to decide the way in which the business operates, as he has the flexibility to restructure or dissolve the business as he sees fit. This enables the organisation to be quickly adaptable. However, competitors which are able to gain capital more quickly are more likely to succeed when there is a need to be more flexible.

Sole traders do not need to keep detailed accounting information, however it may benefit them to as some groups, such as lenders that may require this information. They have to pay taxes themselves, which does require them to keep some information.

Sole traders have unlimited liability, which means that the law does not see them as separate from their business and there is no difference from the money of the business and that of the sole trader; meaning that if the business occurs debts, then so does the owner. This is a key factor to take on, and failure may lead to the loss of possessions and bankruptcy.

Partnership

Partnerships are defined by the Partnership Act 1890 (53 & 54 Vict. c. 39): "The relationship which subsists between persons carrying on a business in common with a view of profit". A partnership is neither incorporated nor registered as a company; generally partnerships consist of ordinary partners who are legally liable for the business.

A benefit of starting a partnership is the ability to raise capital more freely. The business is not reliant upon one person's skills. The business can use different persons strong points to their advantage. This is applicable to accountants – one may be able to give advice easily, whereas the other partner may be more capable of sorting accounts. These partnerships are most prevalent among the professional industries such as architects, doctors, and solicitors.

Partnerships are able to start trading straight away, however, they may need to wait to get the correct licences. If the partnership is trading under a different name other than that of the partners, the organisation must have the names of the partners available to the public; this may mean putting them on documents they must have the name and address at which documents may be served.

Full partnerships consist between two and 20 people, but more commonly, the amount is under six ordinary partners. They are governed by the Partnership Act 1890 which ensures that every partner is equally liable for the business, even if a partner owns just 1% of the organisation. This is why it is important to set out a deed of partnership (partnership agreement) which will outline what each partner has put into the business, what are the responsibilities of each partner, and how they will share the profits and losses.

Limited partnerships

These are where one or more general partners enter or allow 'limited partners' to go into business with them. Limited partners, often called sleeping partners, have limited liability whereas general partners have full liability arranged in their agreement of partnership.

This type of partnership is governed by the Limited Partnerships Act 1907 (7 Edw. 7. c. 24).

Limited partners may not draw out or receive back any part of their contribution to the partnership during its lifetime, or take part in the management of the business or have power to bind the firm. If they do, they become liable for all the debts, and obligations of the firm up to the amount drawn out or received back or incurred while taking part in the management, as the case may be.

This type of partnership has to be registered with the Registrar of Companies at Company House. Registration is charged at £2.00. The form is LP5; it is the application for registration, and for the statement of particulars, the following information is required.

Name of the firm or partnership Nature of the business Principal place of business The term, if any, for which the partnership is entered into. If no definite term, the conditions of the existence of the partnership Date of commencement Name and address of the general partners Name and address of the limited partners and the amounts contributed Signatures of all the partners and the date

Limited partnerships may not normally consist of more than 20 people. However, under section 717 of the Companies Act 1985, there are a number of exceptions to this rule, including:

A partnership carrying on practice as solicitors and consisting of persons each of whom is a solicitor; A partnership carrying on practice as accountants where the partnership is eligible for appointment as a company auditor; A partnership carrying on business as members of a recognised stock exchange and consisting of persons each of whom is a member of that exchange; A partnership carrying on business as surveyors, auctioneers, valuers, estate agents, land agents, or estate managers and consisting of persons of whom at least three-quarters are members of the Royal Institute of Chartered Surveyors or the Incorporated Society of Valuers and Auctioneers and of whom not more than one-quarter are limited partners; A partnership carrying on business as insurance brokers and consisting of persons each of whom is a registered insurance broker or an enrolled body corporate. (For the meaning of 'registered insurance broker' and 'enrolled body corporate' see section 29(1) of the Insurance Brokers (Registration) Act 1977.) A partnership which is a collective investment scheme the operator of which, or the manager of the investments of which, is an authorised person under part IV of the Financial Services and Markets Act 2000 or a European Economic Area firm or a treaty firm with permission under the act to operate the scheme or manage the investments.

In a limited partnership, it is the general partner who remains liable for the debts and obligations of the entity. For larger risk exposure, a company (corporation) may be formed to serve as the general partner. A corporate general partner is protected from direct attack by a judgment creditor because the ultimate liability for the debts and obligations rests with the shareholders. By spreading share ownership, individual exposure is considerably reduced. Even without a corporate general partner, risk can be spread by distribution of limited partnership shares. If a judgment creditor obtains a charging order against one partner, the order goes to that partner's share in distributions from the partnership, and not to the entire business.

Limited liability partnerships

The Limited Liability Partnerships Act 2000 (c. 12) came into effect 6 April 2001, making limited liability partnerships (LLPs) available to two or more persons wishing to enter business. The legislation has been formed by cross referencing, meaning that there is no sight statute which contains the legislation applicable to LLPs; this means that there are several hundred sections applicable to LLPs.

The Company Directors Disqualification Act 1986 (c. 46) is applied to the LLPs, making it so that a disqualified director is unable to join LLPs and so members of may also face the same proceedings as directors.

The key features of limit liability partnerships are:

They are a corporate body, which means they are separate from the members. LLPs can own property, employ people, enter into contractual obligations and the LLP occurs the debts. An LLP has unlimited capacity which means that it is able to trade outside of its usual categories; companies have to trade within its Memorandum of Association. An LLP does not have directors and share holders but it does have members. It is not governed by the rules for maintenance of capital which companies are. They have limited liability which means the LLP is liable for its debts for the full extent of its assets. LLP's are do not have a Memorandum or Articles of Association. It has structural flexibility it has no requirements for the board or general meetings or decision making by resolution. LLP is required to maintain account records and is to prepare and deliver audited annual accounts to the register of companies; it will submit an annual return in a similar way to companies. LLP's and those that are members of groups can receive an exemption from auditing if it has a turnover if the turnover is less than £350,000 and a balance sheet total of less than £1.4 million.

It is essential for a limited liability partnership to have at least two designated members; these are selected by the agreement of the other members the rights and responsibilities are drawn upon the limited liability partnership agreement.

Their duties are as follows:

Appointing an auditor (if one is needed). Signing the accounts on behalf of the members. Delivering the accounts to the Registrar. Notifying the Registrar of any membership changes or change to the registered office address or name of the limited liability partnership. Preparing, signing and delivering to the registrar an annual return (Form LLP363a) and acting on behalf of the limited liability partnership if it is wound up and dissolved. Designated members are also accountable in law for failing to carry out these legal responsibilities.

All members not just designated members are agents of the LLP they do have responsibilities to which have yet to be developed by the courts. Typical obligations its to act in the interests of the LLP, avoid conflicts of interest and prohibition on the making of secret profits.

A limited liability partnership has not got the same structure which is usually required be a company which has in statute provision for the structure of directors or board structure of management. It is for the members to create an LLP Agreement which is a separate document which is not to be given to Companies House it is to be held by the members themselves.

The main reasons for having an LLP agreement is that the default provisions in the absence of the agreement allows for all members of the LLP is that every member is to take part in the managements of the organisation, members are entitled to share profits equally. There is no member which is entitled to remuneration for acting in the business or management of the LLP.