SAMPLE QUESTION Introduction Just because you have a business does not mean that you have to form a company. As the name suggests, 'company law' concentrates on the law relating to limited companies; however, this is not the only trading structure available when starting a business. Examiners will want to see that you can recognise when it would be advisable for an individual to register a limited company and when it would not, as this demonstrates that you are familiar with the key attributes of the different trading entities and can assess their relative benefits. For this reason it is not uncommon to see an examination question which asks you to evaluate the different forms that a business can take. ASSESSmEnT AdvICE Questions on this topic can take the form of essays, which ask you to outline the dif-ferent trading forms, or problem questions which depict a new business unsure of which trading form to adopt and seeking your advice. In reality, such 'problem' questions are also basically essays, as they require you to set out the different trading structures in exactly the same way but ending with, 'therefore X should be advised to . . .'. In all cases, you should differentiate clearly between the different structures, paying particular attention to issues of limited liability. It is also important to emphasise the different regulatory burden attached to each, as this is one of the key factors which may influence the choice of which is most appropriate for any particular business. Sample question Could you answer this question? Below is a typical problem question that could arise on this topic. Guidelines on answering the question are included at the end of this chapter, whilst a sample essay question and guidance on tackling it can be found on the companion website. 6 M01_TAYL1711_02_SE_C01.indd 3 08/06/12 11:34 PM

1 COMPANIES AND OTHER TRADING STRUCTURES

ProblEm quESTIon Charlie started making garden furniture in his shed as a hobby after he was made redundant two years ago. Over that period, he started selling his furniture to local people and now he has a reputation and a number of orders. Such is the demand that he is seriously considering setting up his own business and the local garden centre has suggested that they would be prepared to order ￡10,000 worth of furniture a month if Charlie could guarantee delivery. Charlie's cousin Bernie wants to join him in running the business but has told him that they must form a

registered company if they are to expand their operation, particularly as they would need to

rent larger premises and hire a number of workers if they were to meet the order from the garden centre. This all sounds a little daunting to Charlie and so he seeks your advice. Advise Charlie on the different forms of trading structure available to him, together with the relative advantages and disadvantages of each. Trading structures When starting a business, it is important to select the most appropriate trading structure. There are four main trading structures available in England and Wales:

Sole trader

Partnership

Private limited company (Ltd

Public limited company (plc) (including 'listed companies'). Each has its own characteristics in relation to three key areas:

Liability

Ownership and control

Accountability and regulation. Sole trader As the name suggests, the sole trader operates alone and, as such, is the simplest form of trading structure.

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