Common Business Structures our Commercial Conveyancing Solicitors Deal With
Posted on 2nd March 2024
Understanding business structures can be complex, with various roles and formats through which business can be conducted. Understanding the difference between shareholders, directors, sole traders, and partnerships is crucial for anyone looking to start or invest in a business, as each has its unique implications for control, liability, and financial rewards. This blog from our Commercial Conveyancing Solicitors aims to demystify these terms and highlight the key differences, assisted by their knowledge of businesses in dealing with commercial conveyancing.
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Shareholders
Shareholders are individuals or entities that own shares in a company. Their ownership represents a claim on part of the company’s assets and earnings. Shareholders invest money into the company, typically through the purchase of stocks or shares, and in return, they may receive dividends based on the company’s profitability. Shareholders can only really small numbers of shares, and be one of hundreds of co-owners of a business, but with many smaller businesses, shareholders will be fewer in number, with many businesses having only one shareholder. You can usually find a list of the shareholders of a limited company on gov.uk, with details of how many shares are issued and who owns what shares.
Financial Risk:
With limited companies, this is limited to the amount of the shareholder’s investment.
Control:
Shareholders have the right to vote on major company decisions, typically at the annual general meeting (AGM), but do not manage day-to-day operations. The amount of sway a shareholder’s vote has depends on their percentage shareholding in the company, and typically those with a lower shareholding will have a lower amount of control over a company.
Directors
Directors are appointed by shareholders to manage the company’s affairs and make strategic and operational decisions. They are responsible for the overall direction, management, and administration of the company on a day-to-day basis. Directors owe a fiduciary duty to the company and its shareholders, meaning they must act in the best interest of the company. Directors do need approval of some decisions from shareholders, but this can depend on the nature of the decision and the process set out by the Company Act 2006.
Financial Risk:
Directors can be personally liable for decisions, if found to be acting fraudulently or negligently.
Control:
Have significant control over the company’s business and strategic decisions, managing this on a day-to-day basis.
Liability:
Directors’ responsibilities and liabilities are defined by law and the company’s articles of association.
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Sole Traders
A sole trader is an individual who owns and operates their own business. It is the simplest business form under which one can operate a business. Sole traders are personally responsible for all aspects of the business, including debts and liabilities, and are usually the only person making decisions about the business, unless the sole trader employs someone in a managerial role.
Financial Risk:
A sole trader takes all financial risks personally, and personal assets can be used to settle business debts.
Control:
Have complete control over the business decisions and operations.
Liability:
Face unlimited liability, meaning personal assets are not protected in the event of business failure.
Partnerships
A partnership is a business structure in which two or more individuals manage and operate a business in accordance with the terms and objectives set out in a Partnership Agreement, or if no formal agreement exists, in terms defined under the law. Partnerships can be general or limited, where in a general partnership, all partners share the business’s management and financial risks, while in a limited partnership, some partners have limited liability and do not partake in day-to-day management.
Financial Risk:
In general partnerships, partners share liability for business debts and obligations.
Control:
Control and management duties are divided among partners, as outlined in the Partnership Agreement.
Liability:
General partners face unlimited liability, while limited partners have liability limited to their investment in the partnership.
Understanding the distinctions between shareholders, directors, sole traders, and partnerships is fundamental for anyone involved in or looking to start a business. Our Commercial Conveyancing Solicitors deal with all types of business owners and structures, assisting with business leases, and the sale and purchase of commercial property. Whether you are a sole trader, director, shareholder or partnership needing assistance with your business property needs, contact the experts and seek legal advice from CQS accredited, SRA regulated commercial conveyancing solicitors today. Call our team on 01772 783314 or email property@mglegal.co.uk to chat to our expert team.
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Tagged as: Commercial Conveyancing
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