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II Forms of businessentitiesThe following provides a brief introduction tothe various forms of business entity availablein the United Kingdom.The company is the most widely used form.The law relating to companies changed,significantly in some areas, as a result of theCompanies Act 2006 (‘the 2006 Act’), whichcame into force in stages but has been in forcein its entirety as of 1 October 2009.As you will see, the 2006 Act also impacted onLimited Liability Partnerships.1. Individuals trading in Englandand WalesIf an individual wishes to establish and carry atbusiness in England and Wales, he canestablish a company or carry on business as asole trader, or in partnership (with a personresident or not resident in England and Wales).Under section 7 of the 2006 Act, any type ofcompany (including public and unlimitedcompanies) may be formed as, or may beconverted into, a single member company.There are no registration requirements toestablish a business as a sole trader orpartnership, although there are many of thesame continuing requirements as for acompany (e.g. registration for VAT and PAYE).2. PartnershipA partnership can be said to exist between twoor more persons if three conditions aresatisfied. There must be:• a business;• which is carried on by two or morepersons in common; and• with a view to profit.There is also a view that there should be afourth condition namely an agreement to shareany profits realised. Almost any kind ofbusiness may be carried on in England andWales by a partnership provided it is with aview to profit.A partnership does not of course cease to be apartnership if it makes a loss, it is the intentionto make profit that is key.As mentioned above, partnerships are notregistered in the same way as companies andLLPs (see below) and it is a matter of factwhether a partnership exists.It is also not necessary for there to be a formalagreement between the partners, but inpractice there usually is some form of writtenpartnership agreement. Formal agreement isparticularly important in the case of an unequalcontribution to the assets of the partnership byindividual partners as there is an assumptionthat, unless otherwise agreed, partners willshare equally in the profits, capital and anylosses of the partnership.A partnership is not a separate legal entity so,for example, assets will commonly be held bythe partners on trust for the partnership.However partnerships can now sue or be suedin the name of the partnership. Liability of thepartners is unlimited.Profits and capital gains of the partnership aretaxed in the hands of the individual partners.See the section entitled ‘The Tax System’ onpage 10 for details of personal taxes.A partnership is recognised as a legalrelationship throughout the EU and provided ithas been formed in accordance with the lawsof a Member State and has its registered officeor principal place of business within the EU, itwill be treated for all purposes of EU law in thesame way as a natural person who is anational of the Member State. (EuropeanCommunity Treaty, Article 48).3. Limited liability partnershipsA limited liability partnership (‘LLP’) is analternative corporate structure which wasdeveloped to satisfy the need of certainprofessional groups, such as law andaccountancy firms to obtain limited liability fortheir members while retaining the flexibility of a‘traditional’ partnership. However, despite theirname, they are more akin to a company than apartnership and very little partnership lawapplies to them.4