The sole trader
Having introduced the various business organisations,
we will now consider, in more detail, the legal environ-
ment in which sole traders operate.
Formation of the business
Name of the organisation
Business names
1 Generally. The main formality facing the sole trader
on commencement of business is the Companies Act
2006, which replaces the Business Names Act 1985, which
is wholly repeated. Even this does not apply if he trades
in his own name. If, however, a business name is chosen,
then the 2006 Act must be complied with. For example,
a business name occurs where the organisation is run
in a name which does not consist onlyof the surname
of the sole trader. Forenames or initials are allowed in
addition.
Therefore, if Charlie Brown is in business as ‘Brown’, or
‘C Brown’, or ‘Charlie Brown’, the name of the organisa-
tion is not affected by the Act. The names are not business
names. Recognised abbreviations may also be used, such
as ‘Chas Brown’, and still the name is not a business
name.
However, if Charlie Brown is in business as ‘High
Road Garage’, or ‘Chas Brown & Co’, ‘C Brown & Co’,
‘Brown & Co’, he is using a business name and the 2006
Act must be complied with as regards choice of the
name and disclosure of the name of the true owner.
The rules regarding disclosure do not apply where the
only addition to the name of the sole trader is an indica-
tion that the business is being carried on in succession to
a former owner.
Often a sole trader will want to use the name of the
previous owner of the business so that he can use the
goodwill attached to it. Goodwill is the probability that
customers will continue to use the old business for their
requirements. It may also be a reputation for a certain
class of article, such as a Rolex watch. If Charlie Brown
bought a business called ‘The Village Stores’ from Harry
Lime, the new business could be called ‘Charlie [“Chas”
or “C”] Brown (formerly Harry Lime’s)’ and would not
be affected by the Act. However, if Charlie Brown went
further than merely including his own name and that of
the previous owner as if he traded as ‘Charlie [“Chas”
or “C”] Brown Village Stores (formerly Harry Lime’s)’
or ‘Village Stores’, he would have a business name and
would have to comply with the Act.
2 Restriction on choice of business name. As we have
seen, the main controls are that a sole trader’s business
must not be carried on in Great Britain:
(a)Under a name which leads people to believe that it
is connected with a central or local government author-
ity unless the Secretary of State for Business, Enterprise
and Regulatory Reform agrees. This is to prevent a
possibly false sense of security in the public who deal
with the business because these authorities get regular97Chapter 5 Non-corporate organisations –
sole traders and partnerships
Learning objectives
After studying this chapter you should understand the following main points:
■the rules that apply to the choice of a name for a business organisation;
■the bankruptcy procedure that follows individual insolvency;
■the law relating to the various kinds of partnership.