As entrepreneurs, many of us will or already have started up a business. Like me, this business could be a number of relatively small internet sites or it could range to a full-fledged retail outlet. Either way there are different organisations which you can choose to take the form of which may help or hinder your pathway to success.
The following four types of organisation are relevant to businesses in the UK, but if anyone can give me information on different types in the USA or Australia I would be happy to post them up.
1) Sole Trader – this is simply someone who owns his/her own business. As I said I would class myself as a sole trader blogger and internet entrepreneur. This title is pretty loose and more importantly there is no legal distinction between the owner and the business. But the owner can use a trading name instead of his own.
2) Partnership – a partnership is formed when a business is setup from between 2 to 20 people. These partners will have a legal agreement drafted up for them specifying rights and duties. However still, there is no legal distinction between the owners and the business.
Partners can be a tricky situation to deal with. Many people have forged great partnerships together but family partnerships can end up disastrous. Read Entrepreneur.com‘s Article on 10 Tips for Working With Family Members for more.
3) Private Limited Company (Ltd.) – if you’re in the UK you may have seen a lot of these around, maybe on the high-street or maybe an internet based e-commerce company. These businesses are registered with Companies House and have between 1 and 50 shareholders. These shareholders may be family or friends and you get to have the “Limited” word in your company name.
The actual definition behind the terminology is that the liability of the company is limited to the capital (shares) invested. The shares however cannot be traded on the stock exchange. If the company were to go bankrupt however, the owner would not be personally liable for debts incurred.
4) Public Limited Company (plc) – This is a company where shares must be available to the general public through the Stock Exchange, and this therefore means that the PLC needs a Stock Exchange Listing. The process for obtaining one of these involves a costly process which may also take a long time. There are certain requirements for having a PLC too; there must be:
- at least £50,000-worth (Republic of Ireland: €38,092.14) of share capital of which at least 25% must have been paid for.
- two shareholders
- two directors, one of whom may also be the company secretary
- a certificate of entitlement (the trading certificate) to do business and borrow capital