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Forming a traditional partnership may seem like the most logical option in a case like this one.

Emily and Gemma have a common business idea and different skills, which can be combined

to build a good business team. A partnership is easier to set up and run as well as the way it is

governed and taxed (Adams, 2010). Emily and Gemma will share the profits, the liabilities and

any financial risks. They can split their responsibility according to their skills. Partners also

may share the decision making, in order to help each other out when they need to. These are

what concern the advantages of a partnership.

However, a partnership also has some disadvantages. Emily will have less of freedoms with

regards to the management of the business because she has to get Gemma's agreement with

things that are being done. This leads to one of the most obvious disadvantages is a danger of

disagreements between the partners because partners may different view on how the business

should be run (Adrian, 2010a). Additionally, the equal profit sharing can lead to inconsistency

where one of the partners isn’t putting necessary efforts into the business, but still getting

rewards. Also, Emily and Gemma must pay tax in the same way as sole traders, it means each

submitting an individual assessment tax return each year. They must pay a greater level of

personal taxation if the business brings more than a certain level.

A private company limited by shares is a type of company which when set-up allows an

entrepreneur to keep their own assets and finances separate from the business itself (Salomon

v Salomon & Co. Ltd [1897] AC 22). It can be run with just one member, but cannot trade

shares to the public to raise capital. The obvious advantage is the financial security and fact

that the company will be deemed a separate legal entity from its owners (Allen and Riches,

2009). A limited company is only taxed on its profit. If Emily is forming and running the

limited company, she will get a benefit to pay herself in dividends instead of in the form of
minimum wage level. As owners are the main shareholders of the company, Emily also can

get more decision making power and profit because her initial investments are more than

Gemma's investments. Also, Emily or Gemma can use the own house to start their business

and claim back for the cost of doing so. Disadvantages of a limited company can be costs to

set up and complex rules of the accounts and bookkeeping governing (Adrian, 2010b). As

mentioned, a company's shares are restricted, but both the ownership and control of the

business will remain in Emily and Gemma's hands.


A company is created by registration under the Companies Act 2006. This Act states that any

registered company, which is not a public company is a private company and it must have

‘limited’ or ‘ltd’ after its name. All companies limited by shares must be legally registered

with Companies House. The following must be done in order to incorporate a business:

1. Application for Registration. This is IN01 form and includes:

 company type;

 proposed name. Section 66 of the Companies Act 2006 states the name cannot be the

same as a current registered name. Emily and Gemma can use their chosen name of

“Silver & Stones” for the business. According to Companies House, the company with

this name has been dissolved on 8 January 2013. The names of dissolved companies

can be registered by new company, but Emily and Gemma should consider the

reputation of the business that previously operated under this name (Adams, 2010);

 the company’s domicile;

 statement of share capital and initial shareholdings. Section 10 of the Companies Act

2006 states a company must have at least one shareholder, who can be a director and

the statement must include the names and addresses of all shareholders;

 proposed directors and secretary if any;

 statement of compliance.
2. Memorandum of Association. It includes the people who agree to take shares once the

company is incorporated. Section 8 of the Companies Act 2006 states each member must hold

at least one share; must be authenticated by each member. It cannot be amended after


3. Articles of Association. It outlines the rules and regulation of the company and its

members. Part 3 of the Companies Act 2006 represents a company's constitution and includes

the company's articles, and any resolutions and agreements affecting the company's

constitution. Schedule 1 of the Companies (Model Articles) Regulations 2008, is the default

company constitution for private companies limited by shares under UK company law.

Companies can register its own unique Articles or adopt the Model Articles in part.

4. Fee for Incorporation. The fee can be different and depends on the submitting types:

 £40 for submitting hard copy materials;

 £100 for submitting hard copy materials and the same day service;

 £12 for register online, if the company is limited by shares and uses standard articles of
association (UK Government, 2017).

If the documents are in order, the registrar will issue a certificate of incorporation, which

means a company has a legal identity of its own and it is not related to the legal identity of its

owners. After company formation, the company must be registered for Corporation Tax within

3 months of starting operations. Under the Companies Act 2006, company is required to

follow a number of filing requirements and financial reporting regulations.


Since Giles does not want to be involved in the day-to-day running of the business, he cannot

be a director. Considering this, the best solution is to make Giles a shareholder and give him

some shares. Giles must be added to the statement of share capital and initial shareholdings,

and can be described as a ‘quasi-partnership’. As the shareholder, he does not to have any

influence in the day-to-day running of the company, but this is determined by the articles

(Adams, 2010). Giles will have the potential to profit from the company if the business goes

well, but not be personally liable for the company's debts if anything should go wrong.

Adams, A. (2010) Law for Business Students [online]. 6th ed. Harlow, England: Pearson

Education Limited. [Accessed 07 March 2017].

Adrian, K. (2010a) Advantages and Disadvantages of Partnership. Blog [blog]. 01 March.

Available from:

disadvantages-of-partnership [Accessed 07 March 2017].

Adrian, K. (2010b) Advantages and Disadvantages of a Limited Company. Blog [blog]. 03

February. Available from:

disadvantages-of-a-limited-company#comments [Accessed 07 March 2017].

Allen, V and Riches, S. (2009) Keenan and Riches’ Business Law [online]. 9th ed. Harlow,

England: Pearson Education Limited. [Accessed 07 March 2017].

Companies Act 2006 [online]. Chapter 46 (2006) Legislation UK. Available from: [Accessed 07

March 2017].

Companies House (2013) Companies House. Available from: [Accessed 07 March 2017].

Salomon v Salomon & Co. Ltd [1897] AC 22.

The Companies (Model Articles) Regulations 2008 (SI 3229).

UK Government (2017) GOV.UK. Available from:

formation/register-your-company [Accessed 07 March 2017].