Task 2: Types of business in the UK

Sole traders:

A sole trader is someone who is the exclusive owner of a business, they're entitled to keep all of their profits after taxes have been paid but liable for all losses. Sole traders can also hire people under their business structure. Some examples of what a sole trader would be are Freelancers like designers, photographers, animators, and copyrighters. Another example of sole traders is Self-employed tradespeople like builders, plumbers, gardeners, and carpenters. Another example is Gig economy workers like taxi drivers, delivery drivers, tutors, and nannies.

Advantages of being a Sole trader:

As the sole owner, you have complete control over your business
As your business isn't incorporated, there are fewer filing requirements. Setting up as a sole trader is seen as the most simple way to work self-employed.
A sole trader business offers owners great flexibility and incorporating your business further down the line is pretty straightforward.

Disadvantages of being a Sole trader:

Due to unlimited liability, you're personally liable for any debt that your business experiences.
Sole traders have fewer tax planning opportunities, all the profit you earn is susceptible to income tax in the same year that it’s earned.
Due to the fact that you will be engaged personally, rather than through an intermediary (like a limited company), recruitment agencies may be reluctant to engage you as a sole trader.

Limited companies:

A limited company is "a general form of incorporation that limits the amount of liability undertaken by the company's shareholders". It follows a legal structure that will make sure the liability of company members or subscribers is limited to their stake in the company by methods of investments or commitments. Some examples of job titles that are found in private limited companies are plumbers, hairdressers, photographers, lawyers, dentists, accountants, or driving instructors. The people that own a private limited company are also known as shareholders.

Advantages of Limited companies:

Limited company owners have limited liability.
They give individuals the opportunity to be the boss of their own company/business
Any new shareholders need to be invited, which helps protect the business from outside influence.
Shares in the business can also be sold to raise money.

Disadvantages of Limited companies:

There is often more paperwork needed to be filled in.
In some scenarios, other people/businesses are able to look at your business's financial information.
It can be very time-consuming to get everything set up.
Your business may require outside professional help to manage its finances.
Shareholders will expect to receive a percentage of the profits as dividends.

Partnerships:

A partnership is the relationship of multiple 'partners' carrying out a business with a view to making a profit. Your business and its partners are held responsible for running the collaborative business and you share profits between yourselves. Partnerships (apart from LLPs - Limited Liability Partnerships) are not separate legal entities. Some examples of business partnerships are Red Bull and GoPro, Louis Vitton and BMW, and Spotify and Uber.

Advantages of Partnerships:

There's a larger amount of flexibility in partnerships than when running a company.
Partnerships can be a great way of combining different skills and sharing experiences to create a strong business entity. Corporation or capital gains taxes don't have to be paid.
The costs of incorporating a company are avoided and there's less administration due to no requirements needed to file any documents.
Partnerships don't have to publish or audit their accounts, which means that financial and other information can be kept private from other businesses.

Disadvantages of Partnerships:

Partnerships aren't separate from the partners, and because of this, there is no independent legal existence that is distinct from the partners.
Due to most partnerships not being separate from the partners, you and your partners are personally responsible if the business makes a loss in income and for any debts you face.
Your share of profit is also taxed as income.
Any dispute which arises in a partnership can cause major problems to the effective running of a business or when it comes to ending the business.

Social enterprises:

A social enterprise is a business that is "changing the world for the better". Like traditional businesses, they aim to make a profit but it’s what they do with their profits that sets them apart from others – donating or reinvesting their profit to create positive social change. Some examples of social enterprises are coffee shops, cinemas, pubs, leisure centres, banks, and bus companies.

Advantages of Social enterprises:

Your social enterprise can make a positive impact on your society.
Marketing and promoting your social enterprise is very easy and often relies on the level of exposure upon the level of uniqueness of the arrangement.
Employees working at your social enterprise may feel good about themselves because they'll understand that they're contributing to benefiting something in a socially responsible way.
Your social enterprise takes advantage of the economy by creating employment and salary. In addition to providing jobs, social enterprises additionally use a portion of their benefits to fund projects that can profit the network in general.

Disadvantages of Social enterprises:

Your social enterprise will have to compete against others in the commercial market and will face challenges and risks that are common to all businesses.
Your social enterprise will introduce certain controls and restrictions and it'll be expected for you to operate commercially, generating a proportion of its income from trading.
Constantly having to monitor your market as communities and consumers are always changing. So falling behind can result in your business missing out on the chance to update your strategy to maintain interest in the community.

Charities:

A charity is "an organization whose primary objectives are philanthropy and social well-being (e.g. educational, religious or other activities serving the public interest or common good)." The legal definition of a charitable organisation varies between countries and in some instances, regions of the country. Some examples of charitable organisations are Salvation Army, RSPCA, British Heart Foundation, and Cancer Research UK.

Advantages of Charities:

Charities are often able to raise funds from the public, grant-making trusts, and local government more easily than non-charitable businesses.
Charities generally don't have to pay income/corporation tax, capital gains tax, or stamp duty, and gifts to charities are usually free of inheritance tax.
Charities can reclaim gift aid from many of the donations they receive from anonymous donors.
A charity can get special VAT treatment in some circumstances.

Disadvantages of Charities:

There are limits to the extent of political or campaigning activities which a charity are allowed to take on
A charity must exclusively have charitable purposes. Some organisations will carry out a variety of activities, but only some of them will be charitable activities.
Charities are subject to follow strict rules and must only use the income they receive for charitable causes and not for their own benefit, so they cannot use money from donations on themselves.
Trustees must try to avoid any situation where charitable and personal interests conflict.

Unincorporated associations:

An unincorporated association is "a group of people who come together" for a common purpose (unless their purpose is to make a profit) and they intend to create a "legally binding relationship" between themselves. Unincorporated associations are relatively cheap and easy to form. They require a bare minimum of formalities in bringing them into existence (they can even be formed without their members realising it). They're also extremely flexible, with examples of tiny associations of just a few people, and national organisations with thousands of members. Some examples of unincorporated associations are Amateur football teams, residents paying for a collective fund for street sweeping etc. and trade unions.

Advantages of unincorporated associations:

They are cheap, quick, and pretty easy to set up.

They can generally be wound up easily, provided this has been allowed for in the constitution.

They can be registered as a charity or CIO (Charitable Incorporated Organisation), CIC (Community Interest Company), Company or other legal structures.

Disadvantages of unincorporated associations:

There is no limited liability, therefore if the associations go into debt, it'll be the individuals responsibility to pay off those debts.
The association may be restricted in activities as funders may not give large amounts of money without incorporation/ a more formal structure.
They are sometimes too easy to set up, meaning a group may have become one inadvertently and not understand the full consequences of doing so.
They don't have any requirements, which may mean that some associations don't have basic policies and procedures in place.

Links used:

https://sjdaccountancy.com/resources/becoming-contractor/sole-trader/

https://www.investopedia.com/terms/l/limited_company.asp

https://www.bbc.co.uk/bitesize/guides/zdc6mfr/revision/3

https://www.rocketlawyer.com/gb/en/quick-guides/what-is-a-partnership

https://www.upcounsel.com/partnership-business-examples

https://www.socialenterprise.org.uk/what-is-it-all-about/

https://honestproscons.com/social-enterprise-advantages-and-disadvantages/

https://en.wikipedia.org/wiki/Charitable_organization

https://hlca.co.uk/resources/advantages-and-disadvantages-of-being-a-charity/

https://en.wikipedia.org/wiki/Unincorporated_association

https://www.communitysouthwark.org/unincorporated-associations