Page 3 Chapter 1

CHAPTER 1
Accounting Roles and Transactions

money has to be found from the sole trader’s personal belongings. For example, if a sole
trader cannot keep up the repayments on the loan secured from the bank, the bank has the
right to any or all of the sole trader’s personal belongings until the debt has been repaid or
the sole trader has no more belongings.

Partnerships

This is where a group of individuals come together to form a
business. Typically there will be two to twenty individuals in a
partnership and an agreement will have been made as to the
proportion of profits to which each partner will be entitled.
Partnerships are formed usually because, with more people
involved in the business, there will be more expertise and
money available to invest in the company.

However, as with sole traders, the partners are personally responsible for any losses. In
England and Wales they are ‘jointly’ responsible. All partners are equally responsible for all
the debts of the business. They can only be sued as a group and not as an individual. In
Scotland the law is slightly different. Here they are ‘jointly and severally’ liable, which means
that in certain cases an individual partner can be sued, but if this partner doesn’t have the
resources to cover the suit then the other partners become liable for any amounts due.

Limited Company

A limited company is where a business is formed which is quite separate in legal terms from
its ‘owners’. It will have 'Ltd' or 'plc' after the name. The owners are shareholders but the
company’s finances are separate from the shareholders’ personal finances. The
shareholders have ‘limited liability’, meaning that they are only responsible for the amount
of money they have invested (or guaranteed) to the company.

There are two main types of limited company. A private limited company may have one or
more shareholders. The shares cannot be offered to the public. A public limited company
(plc) must have at least two shareholders and must have issued shares worth at least
£50,000. Both kinds of limited company must be registered at Companies House and each
must appoint a director (at least two if it’s a plc) who will manage the business. Each year a
limited company must file its accounts with Companies House where the figures are open to
the public. Profits are distributed to the shareholders each year (called dividends) in
proportion to the number of shares owned. Some of the profit may be retained by the
company for use within the company to pay future debts or for future investments.

Other Business Types

There are other types of businesses. So far we have only looked at the ‘private sector’.
There are also ‘public sector’ businesses which are owned or controlled by the Government.
The public sector covers a wide range of organisations with different functions e.g.

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