and Music

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A description of the legal structure of the business.
Legal structure
A very important decision for every business to make is what legal structure to adopt. For
entrepreneurs starting out on their own, with no employees and providing a service such as
music or art classes, things can be simple. Generally, the entrepreneur would decide to become
a sole trader. However, if there is more than one person, or the business has high growth
potential, the decision may not be so straightforward. In many cases, some of the more
complicated structures may be more appropriate for tax purposes or to limit liability in the event
of the business being sued.
Once a legal format has been chosen it is not set in stone. Provided the correct procedures are
followed, it is possible to change the legal structure of the business as it develops and as its
needs change over time.
The 3 three main ways in which a business can be legally structured are:
1. Sole Trader: a business owned and operated by one person.
2. Partnership: a business owned and operated by two or more people.
3. Company: a business owned by shareholders but operated by directors who may or may
not be the same people
Sole Trader
The simplest form of business is the sole trader; a sole trader is a business that is owned by one
person. It may have one or more employees. It offers the least personal protection. Under the
law, a sole trader and the business are the same legal entity. Essentially, the sole trader and his
business are one and the same thing – the sole trader is personally liable if his business is sued
or owes any money, i.e. his liability is unlimited. Becoming a sole trader can be risky as the
entrepreneur will be liable to repay the business’s debt from his personal wealth if necessary.
Profits from the business are considered income and are taxed accordingly; essentially, the sole
trader is treated as self-employed for tax purposes.
Partnership
A partnership is a business where there are two or more owners of the enterprise. Most
partnerships are between two and twenty members though there are examples, like accountancy
and solicitors firms, where there are more partners, sometimes numbering several hundred.
The main advantages of a sole trader becoming a partnership are:
It spreads the risk across more people, so if the business gets into difficulty there are
more people to share the burden of debt.
Partners may bring money and resources to the business (e.g. better premises to work
from).