Sole traders are those who trade alone and therefore earn all the profits. They are also personally liable for all the debts of the business. Have you considered who will run your business if you were to become incapacitated or die. Have you made a will or power of attorney so that your loved ones can close or sell the business and inherit any monies from it?
Partnerships are a group of two or more people who work together to achieve the same goal and share profits or losses equally, unless they have a partnership agreement which provides otherwise. Do you have a partnership agreement and does it need updating?
Does it provide for what will happen if one of you dies or leaves, becomes insolvent or gets divorced? If you don’t have a written agreement, then the partnership will automatically end if one partner dies or leaves the partnership and all partners will be deemed to share equally in the profits (or net losses).
A Limited company is managed by its directors and owned by its shareholders. The company, rather than its directors or shareholders, is responsible for any losses (save for certain liabilities falling on directors arising on the insolvency of the company or failure to pay over deducted taxes etc).
Do you have a shareholders’ agreement in place which dictates what will happen if a shareholder wants to sell his/her shares, how such shares are to be valued, whether the other shareholders or the company have first option to buy the shares, how to prevent a departing shareholder leaving the business and setting up a new competing business and how disputes are to be resolved?
If you have any questions arising from this blog, please get in touch with Cathal at firstname.lastname@example.org