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In order to recommend the best business entity, this report identifies and explains the following differences. A limited company is “incorporated” whereas a partnership is “unincorporated”. That means limited companies exist as a separate body from its owners while a partnership does not. This difference has a direct implication to liability aspect. If Mrs. Warner and Mr. Child would choose to form a partnership their liability would be unlimited. Moreover Mrs. Warner and Mr. Child would be responsible for their business debts as individuals and as a group. That would put Mr. Child in a greater disadvantage because if the business fails he could possibly lose £300,000 more than Mrs. Warner. Even though their partnership agreement may state that losses are share equally it is the BCFS bank’s discretion to decide how it would recover money lent to the partnership. So the lender could potentially approach the person with most equity (in this case Mr. Child) and repossess his house. Payment Protection Insurance HSBC
In case of a limited company owners’ losses theoretically would be limited to the amount invested: £500,000 in case of Mrs. Warner and £800,000 in case of Mr. Child. However the lender may ask for their personal guarantee as an additional security. This idea will be explained in more detail in the next section called “Recommendations to BCFS bank”. Though the bank may ask for a personal guarantee the main advantage of a limited company is limited liability as business debts may be huge. A partnership has unlimited liability. Partners are personally liable for all business debts which may be far above the amount of money borrowed. Payment Protection Insurance HSBC
Since time commitments and capital investments of business owners differ, a partnership agreement between them would determine how they would share profits. In the case of a limited company profit would depend on number of shares owned. Even though Mrs. Warner is devoting more time to an enterprise Mr. Child would end up with greater share of dividend (if business is profitable) as he has more personal capital to invest. Payment Protection Insurance HSBC
