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Chapter 1

Types of business entity

A business entity is an organisation that regularly enters into transactions that are
expected to provide a reward measurable in monetary terms. It is evident from
everyday life that there are different types of business entity. What is less clear is that
their organisational (legal) structure and therefore their accounting requirements may
differ.

A sole trader – this is the simplest form of business entity where a
business is owned and operated by one individual. With this form of
entity there is no distinction in law between and owner and the
business.

Partnership – this is similar to a sole trader in that the owners of the
partnership share all the profits and have unlimited liability for the
losses and debts of the business. The key distinction is that there are at
least two owners.

Limited liability companies – this type of business entity differs from sole
traders and partnerships as limited liability companies are established
as legal entities distinct from their owners.

Tutor notes guidance – discussion points

Discuss and give some examples of each to ensure a solid understanding

Make reference to the capital structure of each type of set up – there is further

information in the Study Text which you can reference to expand.

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