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Unit 12: �Financial Management �& �Business 

Practices in Construction

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Dr Adewale Abimbola, FHEA, GMICE.

www.edulibrary.co.uk  

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AIM and Objectives

Aim: Company Status

Objectives: At the end of the lesson, the students should be able to:

List and define the types of business organisation

State supporting legislations for the different business organisations

Differentiate the different types of business organisation

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Learning Outcomes and Assessment Criteria

  • P1 Differentiate between the different statuses of construction companies.

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Company Status - Types

  • Sole Trader.
  • Partnership.
  • Limited Companies (LC).
  • Unlimited Companies.

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Sole Trader

  • This is a business owned by one person/an individual.
  • Sole traders rely on their own savings, bank loans or loans from friends and family to finance their business.
  • For example, indoor sports venue, hotels, nursing homes, waste management, money lending, nightclubs, restaurants, hairdressers, electricians, etc.

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Advantages

keep all the profit they make for themselves

They also get to run the business as they see fit; making all the key decisions by themselves

Less rules and regulations than other types of organisations

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Disadvantages

Sole traders take on all the risks of starting their own business and have the disadvantage of unlimited liability.

They tend to work long hours to shoulder the full burden of responsibility for their business.

Sole traders can only raise limited finance. 

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To make sure a sole trader business stays on the right side of the law, reference should be made to the relevant Acts of Parliament below:

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  • Sale of Goods Act 1979: dictates that goods you sell must be of satisfactory quality, match your promises of performance and be as you describe them.
  • Supply of Goods and Services Act 1982: commits you to undertake services you offer with reasonable care, skill, time, and cost.
  • Data Protection Act 2018: commits you to lawful and secure handing of any personal data you collect, store, or use. This includes obtaining consent from individuals, keeping data accurate and up-to-date, protecting it against unauthorised access or loss, and only using it for legitimate purposes.
  • Consumer Protection Act 1987: holds you liable if you supply a faulty product causing damage or injury unless you can show that not enough was known about its dangers at the time of supply.
  • The Consumer Protection from Unfair Trading Regulations 2008: makes it a criminal offence to knowingly make false or misleading claims – verbal or written – about goods or services you offer.

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Group-assessment Task

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Partnership

Partnerships, sometimes referred to as a general partnership, are governed in the UK by the Partnership Act

Partnership is the relation which subsists between persons carrying on a business in common with a view of profit.

A partnership is a business set up by the deed of partnership document

Lawyers, estate agents, doctor and dental practises often operate as partnerships.

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Group-assessment Task

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  • Consult the link below and develop a sample partnership agreement for a construction business.

https://www.lawdepot.co.uk/contracts/partnership-agreement/?webuser_data_id=166309666

  • Identify the important points/considerations when forming a partnership.

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Advantages

Partnerships can raise more finance than sole traders.

Different partners can bring different skills to the business.

Partners can share the workload and responsibility of the business between them. 

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Disadvantages

Partners may disagree and argue about the future direction of their business

Any profit made is shared between two to twenty people.

Like sole traders, partnerships have unlimited liability.

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Limited Company

  • A limited company is a type of business structure that has been incorporated at Companies House as a legal ‘person’.
  • It is separate from its owners, it can enter into contracts in its own name, and it is responsible for its own actions, finances, and liabilities.
  • The owners of a company are protected by ‘limited liability’.
  • A limited company must be registered as ‘limited by shares’ or ‘limited by guarantee’.

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Limited by shares

is legally separate from the people who run it

has separate finances from your personal ones

has shares and shareholders

can keep any profits it makes after paying tax

Limited by shares companies are usually businesses that make a profit. This means the company: 

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Limited by guarantee

is legally separate from the people who run it

has separate finances from your personal ones

has guarantors and a ‘guaranteed amount’

invests profits it makes back into the company

Limited by guarantee companies are usually ‘not for profit’. This means the company:

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Limited Company (LC)

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  • Limited liability companies have the advantage that the members' liability to contribute to the debts of the company have a fixed limit which is always clear. 
  • There are two ways of setting the limit, by issuing shares or by taking guarantees from the members that they will contribute up to a fixed amount to the debts of the company when it is wound up or when it needs money in particular circumstances.

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Unlimited Companies

An unlimited company has the advantage of being a legal entity separate from its members, but lacks the advantage that most people seek from incorporation, that is the limited liability of the members.

Unlimited companies are registered at Companies House and share many attributes of private limited companies, such as having members/shareholders and directors.

The defining aspect of an unlimited company is that its shareholders are jointly and severally liable for the company’s debts if it becomes insolvent.

Section 3 of the Companies Act 2006 goes on to define an unlimited company: “If there is no limit on the liability of its members, the company is an ‘unlimited company.”

Unlimited companies therefore form only a small proportion of the number of registered companies. Are generally exempt from filing annual accounts with Companies House.

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Self-assessment Task

  • Discuss the difference between the various types of companies: sole trader, general partnership, limited company, and unlimited company?
  • Compare a limited partnership established under the Limited Partnerships Act 1907 and limited liability partnership established under the Limited Liability Partnerships Act 2000. Finally, advise on a suitable type for a construction company seeking to expand its business.

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