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 formation formalities (just register for tax with HMRC).
• Profits taxed as income (income tax + Class 4 NICs); personal allowance £12,570; rates 20/40/45%.

General partnership (Partnership Act 1890)

• s.1 PA 1890: "persons carrying on a business in common with a view of profit." No registration, no writing, no separate personality required — a partnership can arise by conduct.
• No separate legal personality (England & Wales) — partners contract personally.
• Joint liability for debts/obligations (s.9); joint and several for wrongs (s.10–12).
• Default rules apply absent agreement: equal profit share, no salary, no interest on capital (s.24); dissolution on a partner's death/notice (s.26, s.32). A partnership agreement displaces these — a key drafting point.
• Every partner is an agent of the firm (s.5); the firm is bound by acts in the usual course of business.

LLP (Limited Liability Partnerships Act 2000)

• 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.
• Governed by an LLP agreement; no share capital, no directors.

Company limited by shares (Companies Act 2006)

• Separate legal personality — Salomon v Salomon & Co Ltd [1897]. 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: 19% (≤£50k), 25% (>£250k), marginal relief between.

Common traps

• 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 intention or paperwork if s.1 is satisfied — sharing gross returns alone is not conclusive (s.2).
• The corporate veil is rarely pierced — Prest v Petrodel [2013] confined it to evasion of an existing obligation.
• VAT registration is mandatory at £90,000 turnover regardless of vehicle.
• LLP = limited liability but transparent (income tax) taxation — the most commonly muddled distinction.