You set up a Sandwich Shop on the High Street in Folkestone. What type of Business would you run, would you be a sole trader, a partner with another person or become a limited company? A sole trader is when one person has the only share in the company. The best example of this is a window cleaner. But a sole trader doesn’t mean that you can’t employ people, you could have as many employers as you want it just means that you have the only share in the company.
A partnership is when you go into business with other people the minimum of people in a partnership set by the government is 2 and the maximum is 20. A partnership also doesn’t limit you to the number of people you can employ. But the company will have unlimited liabilities this means that if your company goes under my investors can come after me for the money the company owes them. And you can lose everything if you go under
A limited company can be 1 person or numbers of people who have shares in the company but you have to be invited to become an owner in the company by buying shares. But to be a limited company you have to have a minimum of 2 directors. On should be a secretary and one should be a managing director. For my sandwich shop I would chose a partnership because they are easy to set up, you don’t need accountants or lawyers by law but it is advised too because the partner who is keeping the books could swindle the company out of money.
A partnership has no external shareholders so the partners keep the profits which would be good for a sandwich company because a sandwich company would not make a lot of money so you don’t have to keep paying out money to shareholders. I would have more capital input than a sole trader would. I would have more privacy than a limited company because you don’t have to publish your accounts to the public (this will keep costs down). I would also have more expertise in the company because I have more knowledge between the partners; this also would be good for a sandwich shop because one person might specialise in marketing and the other in advertising.
Also in a partnership I could have silent partner, this is when a person pumps in capital to the business but does not take any control over the business, but they do take some of the profits from the business. In a partnership you are advised to set up a deed of partnership. This shows who the partners are (including the silent partners), How much capital each partner has put in, how the profits will be split. This can depend on how much wok a partner puts in against another person. Say in my sandwich I put in 40 hrs a week and my partner only put in 20 hrs a week I might get double the pay he gets because I have worked more hours.
Also the way the profits could be split on how much money each partner puts in. Say I worked more hours than my partner at the sandwich shop but my partner put in more money in but worked less hours the money could then still be split equally. Another benefit of being in a partnership is that if I got in to trouble with my finances me and my partner could split the costs between us two or the number of partners I have in my business. I could come into disagreement over how the profits will be split between me and my partner and who gets the most control over the sandwich shop. I could also come to a disagreement over how many votes each partner has to make those vital decisions in the sandwich shop, like if I wanted to expand or bring in new products like ice creams. Partnerships often a family business, but divorce or a falling out could lead to the company going bust. Problems will be massive if you do not make a deed of partnership.