ECSH33105 - Understanding the corporate structure
You should check that you understand the corporate structure of the business.
(This content has been withheld because of exemptions in the Freedom of Information Act 2000)
Legal entities
It is important to understand the legal entity of the business.Legal entities may include:
Sole traders/proprietors
Partnerships
Limited companies
Sole traders/proprietors
Sole traders are self-employed individuals who run their own business and work for themselves. Sole traders can keep all oftheir business’s profits after they’ve paid tax on them. Additionally, sole traders are personally responsible for any losses their business makes.
Partnerships
There are different types of partnerships including ‘ordinary’ business partnerships, Limited Partnerships (LP) and Limited Liability Partnerships (LLP).
In an “ordinary” business partnership, two or more partners personally share responsibility for their business which includes:
any losses their business makes
bills for itemsthey buy for their business, like stock or equipment
The partners share the business’s profits, and each partner pays tax on their share.A partner does not have to be a natural person. For example, a limited company is classed as a ‘legal person’ and can also be a partner. More information on legal and natural persons can be found on GOV.UK.
In an LP, there will be at least one ‘general partner’ and one ‘limited partner’. General and limited partners have different responsibilities and levels of liability for any debts the business can’t pay. You should note that all partners pay tax on their share of the profits.
In an LLP, there will be two or more members. A member can be a natural person or a legal person such as a company, known as a ‘corporate member’. Each member pays tax on their share of the profits butisn’t personally liable for any debts the business can’t pay.
There are also different types of partnerships which can be set up under Scottish laws such as Scottish Limited Partnerships (SLP) and Private Fund Limited Partnerships (PFLP).
Limited companies (LTDs)
A limited company is a company ‘limited by shares’ or ‘limited by guarantee’.The abbreviation LTD is used to denote a limited company.
Limited by shares
Limited by shares companies are usually businesses that make a profit. This means the company:
is legally separate from the people who run it
has separate finances from personal finances
has shares and shareholders
can keep any profits it makes after paying tax
Limited by guarantee
Limited by guarantee companies are usually ‘not for profit’. This means the company:
is legally separate from the people who run it
has separate finances from personal finances
has guarantors and a ‘guaranteed amount’
invests profits it makes back into the company
See also Companies Act 2006
Public limited companies (PLCs) and private limited companies
You should be aware of the differences between PLCs and private limited companies. PLCs are listed on the stock market and may have many different owners. Additionally, more of their information is publicly available.
The main difference between PLCs and private limited companies is that private limited companies cannot sell shares to the public. This can only be done by PLCs.PLCs are usually larger companies than private limited companies, and they must have issued shares to a value of at least £50,000 before they can trade.
Most limited companies are incorporated under the Companies Act. They are registered with Companies House and hold a certificate of incorporation.All limited companies mustpublish annual accounts.Additionally, shareholders may be natural persons or legal persons such as companies.
Complex corporate structures
Where a business is owned by another business, you should establish who the ultimate beneficial owner of a business is. You may need to work through the corporate structures to find an individual (natural person). You should also establish if the business has any subsidiaries or parent companies.
Where a business operates as part of a group structure, you should take steps to understand how the group structure works. It may be that only some of the businesses in the group undertake relevant activity under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 depending on the nature of the business activities. [Link to ECSH 40545 Group Structures Which Businesses Must Register.docx (sharepoint.com)]