Business & organisational characteristics (sole trader, partnership, LLP, company)

BLP.01 — Business & Organisational Characteristics

Four main vehicles. The exam tests you on legal personality, liability, formation, and tax/governance differences.

Sole trader

• No separate legal personality — the individual is the business.
• Unlimited personal liability for all debts.
• No company-incorporation formalities are needed. Tax notification and business-name disclosure duties still apply. A person newly chargeable to income tax who has not been required to make a return normally must notify HMRC within six months after the tax year ends (TMA 1970 s.7, subject to its exceptions). A sole trader using a business name other than their surname with permitted additions must disclose their name and a service address on the specified business documents (CA 2006 ss.1200–1202).
• Profits taxed as income (income tax + Class 4 NICs); personal allowance £12,570, reduced by £1 for each £2 of adjusted net income above £100,000 (ITA 2007 s.35); main rates 20/40/45% for 2026–27. Scottish rates apply to Scottish taxpayers’ non-savings income. Apply the relevant reliefs and thresholds to the facts; see BLP.13.

General partnership (Partnership Act 1890)

• A general partnership requires at least two persons carrying on business in common with a view of profit (s.1).
• s.1 PA 1890: "persons carrying on a business in common with a view of profit." No registration or written agreement is required, and a partnership can arise from the parties' conduct even if they never call themselves partners.
• No separate legal personality (England & Wales) — partners contract personally.
• Partners are personally liable without limit: jointly for all the firm's debts and obligations incurred while they are partners (s.9), and jointly and severally for wrongs for which the firm is liable under ss.10–11 (s.12).
• Default rules apply subject to express or implied agreement (s.24): equal shares of capital and profits and equal contributions to losses, no remuneration for acting in the business, and no interest on subscribed capital before profits are ascertained. Subject to agreement, a partnership for an undefined time can be dissolved by notice to the other partners (ss.26, 32(c)); death or bankruptcy of a partner dissolves it as regards all partners (s.33(1)). A partnership agreement can displace these defaults. Do not confuse dissolution with an agreed retirement while the other partners continue.
• Every partner is an agent of the firm and of the other partners for the purpose of the partnership business (s.5). An act done for carrying on, in the usual way, business of the kind carried on by the firm binds the firm and the partners, unless the partner had no actual authority in that matter and the person dealing with them either knew of the lack of authority or did not know or believe them to be a partner.

LLP (Limited Liability Partnerships Act 2000)

• At least two persons must subscribe to form an LLP. If it carries on business with only one member for more than six months, a member who knows this can be jointly and severally liable with it for debts contracted during the later single-member period (ss.2, 4A).
• Separate legal personality + limited liability for members.
• Incorporated at Companies House; must file accounts and confirmation statement.
• Taxed transparently like a partnership (members pay income tax/CGT), but limited liability like a company — the hybrid.
• Members' rights and duties are governed by any LLP agreement and, where there is no agreement on a matter, by the default rules in the Limited Liability Partnerships Regulations 2001 regs 7–8 (LLPA 2000 s.5): for example, members share capital and profits equally, no member is entitled to remuneration, and no majority can expel a member without an express power. An LLP has no share capital and no directors; it is run by its members, some or all of whom are designated members (s.8).

Company limited by shares (Companies Act 2006)

• Separate legal personality — Salomon v A Salomon & Co Ltd [1897] AC 22. The company owns its assets; members own shares.
• Limited liability: members liable only up to amounts unpaid on shares.
• Incorporated at Companies House (model articles apply by default).
• Pays corporation tax on taxable total profits. For an ordinary UK-resident company that is not a close investment-holding company and has no ring-fence profits, the FY2026 small profits rate is 19% where augmented profits do not exceed £50,000; the main rate is 25%, with marginal relief available up to an upper limit of £250,000. Reduce both limits for associated companies and short accounting periods (CTA 2010 ss.18A–18D). These are not unconditional thresholds for every company; see BLP.15.

Private and unlisted public companies

• A company can be formed by one or more persons (s.7). A public company is a company limited by shares (or limited by guarantee and having a share capital) whose certificate of incorporation states that it is public and which has complied with the Act's requirements for registration or re-registration as a public company; it need not be listed on a stock exchange. Every other company is private (s.4).
• A public company normally uses plc and a private limited company Ltd; Welsh alternatives and statutory exceptions apply (ss.58–60).
• A company formed as public must obtain a trading certificate before doing business or borrowing. The authorised minimum allotted nominal share capital is £50,000 (or the prescribed euro equivalent); public-company allotments normally require at least one-quarter of nominal value and all of any premium to be paid up (ss.586, 761, 763).
• A private company limited by shares cannot offer its securities to the public (s.755). Public status and stock-exchange listing are different things.
• Private companies need at least one director; public companies need two and a company secretary (ss.154, 271). Only private companies use the statutory written-resolution procedure; public companies must hold an AGM within six months following their accounting reference date (ss.281, 336).
• Accounts normally go to Companies House within nine months for private companies and six months for public companies after the relevant accounting reference period; special rules cover first accounts, shortened periods and extensions (s.442).
• Companies and LLPs have public filing obligations for accounts and confirmation statements. Sole traders and ordinary partnerships generally have less Companies House publicity and administration, but still have tax, accounting and other legal duties.

Security and choice of vehicle

• A company or LLP can give a lender a floating charge over a changing class of assets such as stock. Company and LLP debentures are excluded from the 1882 Bills of Sale Act (s.17); the Bills of Sale Acts apply to individuals, not companies (Online Catering Ltd v Acton [2010] EWCA Civ 58, [22]-[24], [36]). Company-charge registration is governed by CA 2006 Part 25; the regime is applied to LLPs by SI 2009/1804 reg.32. Section 859A normally allows delivery for registration within 21 days beginning with the day after creation.
• Sole traders and natural-person partners in an English general partnership give security as individuals. A written security charge over goods falls within the bills-of-sale regime. The 1882 Act requires specific description in a schedule and the statutory form (ss.4, 9); subject to the limited s.6 exceptions, a bill is void, except as against the grantor, for chattels specifically described in its schedule that the grantor did not own when it was executed (s.5). A security bill that purports to assign after-acquired property is not in the statutory form and is void under s.9 (Thomas v Kelly (1888) 13 App Cas 506, as explained in Chapman v Wilson [2010] EWHC 1746 (Ch), [93]-[95]). These rules prevent effective floating security over circulating, after-acquired stock. This is a restriction on that security, not a rule that partners lack capacity to give any security.
• Book debts are different: they are choses in action, excluded from personal chattels under the 1878 Act s.4. Under IA 1986 s.344, a general assignment or charge of a business person's existing or future book debts is void against a later trustee in bankruptcy for debts unpaid at the bankruptcy application or petition, unless registered under the 1878 Act. Section 344(3)(b) excludes from "general assignment" an assignment of book debts due at the date of the assignment from specified debtors or of debts becoming due under specified contracts, and an assignment of book debts included in a transfer of a business made in good faith and for value or in an assignment of assets for the benefit of creditors generally.
• Agricultural-charge exception: a qualifying farmer, other than an incorporated company or society, who cultivates an agricultural holding for profit as tenant or owner may give a qualifying bank a fixed or floating agricultural charge, or both, over farming stock and other agricultural assets (Agricultural Credits Act 1928 s.5). Horticulture is included. It takes effect despite the Bills of Sale Acts (s.8(1)), but it must be registered with the Land Registrar within seven clear days after execution, or it is void against any person other than the farmer (s.9(1)). Section 7 expressly contemplates partnership property. Merely buying and reselling agricultural supplies does not itself make the trader a qualifying farmer.
• Apply the rule to the assets and borrower: inability to give floating security over changing stock does not mean all borrowing or all security is impossible. Keep the stock restriction, the separate book-debt rule and the agricultural exception apart.

Common traps

• A limited partnership is distinct from an LLP: it has at least one general partner with unlimited liability and at least one limited partner. In a limited partnership that is not a private fund limited partnership, each limited partner contributes capital or property of a stated value and is not liable for the firm's debts beyond that contribution; a limited partner who draws out any part of the contribution is liable up to the amount drawn out, and one who takes part in management is liable, as though a general partner, for debts incurred while doing so (LPA 1907 ss.4(2A), (3), 6(1)). Private fund limited partnerships have special rules.
• No separate personality for sole trader OR general partnership — only LLP/company. Don't confuse "limited partnership" (LP Act 1907) with LLP.
• A general partnership can exist without any intention to be partners and without paperwork if s.1 is satisfied (persons carrying on a business in common with a view of profit). Under s.2, sharing gross returns does not of itself create a partnership (s.2(2)); receiving a share of the profits is prima facie evidence of partnership but does not of itself make the recipient a partner (s.2(3)).
• The corporate veil is rarely pierced. The evasion principle in Prest v Petrodel Resources Ltd [2013] UKSC 34 concerns a person deliberately evading an existing legal obligation, liability or restriction, or frustrating its enforcement, by interposing a company under their control. See BLP.02 for the limits and the distinction from concealment.
• Compulsory VAT registration: a UK-established business becomes liable to be registered when the value of its taxable supplies in the year ending with any month has exceeded £90,000, or when there are reasonable grounds to expect its taxable supplies in the next 30 days alone to exceed £90,000 (VATA 1994 Sch 1 para 1). Exempt supplies are excluded. The retrospective test has an exception where HMRC is satisfied that taxable supplies in the following year will not exceed £88,000. Different rules apply to non-UK-established suppliers; do not treat £90,000 as a universal threshold. A business below the threshold that makes, or intends to make, taxable supplies may register voluntarily (Sch 1 para 9).
• LLP = limited liability but transparent (income tax) taxation — the most commonly muddled distinction.

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