2. Types of Business Organisations

1. Sole Traders

These are the most common types of business in the UK because there are no legal formalities required to start the business. As the name suggests, the sole trader is a one person business. The owner provides all the capital required by the business and is totally responsible for its success or failure. Many sole traders provide specialist services such as plumbing, decorating and hairdressing.

2. Partnerships

Sole traders can get round many of the problems they face by forming partnerships. These are fairly easy to set-up with the partners drawing up a deed of partnership according to the 1890 Partnership Act. The Act lays down a series of rules:

Profits and losses are to be shared equally between the partners
Partners are not entitled to salaries
Loans made to the partnership by partners receive 5% interest
There is no interest awarded on the capital invested by partners

Like sole traders, partners contribute all the capital required by the business. A sleeping partner is one who invests money in the business but who does not take part in its day-to-day running.