Know how different aspects affect preparation for a business

P2. How regulations and laws for small businesses can affect

preparation for business

Today’s Objective

Regulations and laws for small businesses

• All businesses have to abide by the law of the land as well as specific regulations that apply to their type of business

• There are thousands of laws, which can be very complex

• We can work out which ones apply to a small business based on legal status

Legal Status

OwnershipSole Trader

Partnership

Private Limited

Company

FranchisePublic

Limited Company

Worker’s cooperative

Public Ownership

Legal Status Advantages Disadvantages

Sole Trader Freedom to do things the way you want toMinimal reporting to government bodies

Unlimited liabilityLonely existenceNeed to have a wide range of skills – marketing, finance etc.

Partnership (As per sole trader) +Shared problem SolvingMore money to invest

(As per sole trader)+Risk of disagreeing on key issuesOne partner may not work as hard as the other but still take 50% profit

Private Limited Company (Ltd)

Liability for debts limited to the amount of money investedOpportunity to attract more money from additional private shareholders.Seen as a more solid enterprise by banks and customers.

Additional regulations and paperwork. In some cases accounts may have to be independently audited.Accounts have to be sent to Companies House as well as HM Revenue and Customs

Franchise Product/Service already designed/knownTrading Support and advertising providedCould be halfway stage for someone who wants their own business

Franchisor charges a fee and takes a share of the profit.There is a limit to how much freedom the franchisee has to make own decisions.

When legally starting a business...

• The business must inform one or more government bodies about their business at the time it is being started or shortly afetr

• HM Revenues and Customs (HMRC) must always be informed because tax is due from profits