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Business and Employment Law > 1: Types of business structures > Flashcards

1: Types of business structures Flashcards

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1
Q

Can sole traders hire employees?

A

Yes, they can.

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2
Q

What is the legislation governing how sole traders set up and run their business?

A

There isn’t anything specific to sole traders, but Companies Act 2006 applies to all businesses.

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3
Q

Does a sole trader business owner have limited or unlimited liability?

A

A sole trader has unlimited liability, so they can be sued personally.

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4
Q

Does a sole trader business have a legal personality separate from its owners?

A

No, they themselves are the business.

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5
Q

What are the sole trader formation requirements?

A

There are none.

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6
Q

What are the sole trader constitutional documents?

A

There is no requirement for a formal constitution for the business.

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7
Q

What are the sole trader ongoing filing requirements?

A
  • No need to register or file accounts and returns with Companies House
  • BUT must do an HMRC self-assessment tax return
  • AND larger business have to submit a balance sheet
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8
Q

To what extent are a sole trader’s business affairs kept private or made public?

A

All private.

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9
Q

What are the 3 types of partnership?

A
  1. Ordinary/General Partnership (known as a firm)
  2. Limited Partnership (not covered further in this module)
  3. Limited Liability Partnership
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10
Q

What is a limited partnership?

A

When the liability of one or more partners is limited to the amount that they have agreed to contribute in the partnership. (Not covered further in this module)

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11
Q

Does the limited partnership business owner also have the right to manage the business?

A

No, they must not be involved in the management of the partnership. Besides the limited partners, there must be at least one managing partner, who would have unlimited liability, like in a general partnership. (Not covered further in this module)

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12
Q

What should you never refer to a partnership as?

A

You should never refer to a partnership as a ‘company’.

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13
Q

What is the legislation governing ordinary/general partnerships?

A

Partnership Act 1890 (PA 1890)

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14
Q

What is the legislation governing limited partnerships?

A

Limited Partnerships Act 1907 (not covered further in this module)

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15
Q

What is the legislation governing limited liability partnerships?

A

Limited Liability Partnerships Act 2000

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16
Q

Does a partner in a partnership business have limited or unlimited liability?

A

Partners in a partnership have unlimited liability. It is the partners themselves entering into contracts rather than the partnership business.

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17
Q

Does a partnership business have a legal personality separate from its owners?

A

No, a partnership is not a separate legal entity and cannot own anything, enter into contracts or incur debts.

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18
Q

How many business owners are needed for a partnership?

A

Two or more.

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19
Q

As some of the PA 1890 default rules are out of date, how can almost all of the rules in the Act be overridden?

A

They can be overridden by an express agreement between the partners.

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20
Q

What is the definition of a partnership as defined by s1(1) PA 1890?

A

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

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21
Q

What will happen if the definition in s1(1) PA 1890 is fulfilled, but the people involved did not mean for a partnership to be created?

A

The partnership will exist in law, even if the people involved did not mean to create it.

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22
Q

What 3 characteristics must be present before an ordinary partnership exists?

A
  1. a business in common
  2. carried on for profit
  3. by or on behalf of the partners
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23
Q

For the purposes of partnership law, what is a business?

A

A continuing enterprise which has been recognised as a commercial trade or profession, e.g. plumbers or solicitors.

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24
Q

Would two people who jointly own a piece of land be in a partnership?

A

No, unless they go further and use the land to carry on a business.

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25
Q

What does an ordinary partnership mean for each partner and their debts?

A

Each partner is liable for the other partner’s debts.

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26
Q

Can a partnership exist before trading is actually commenced?

A

Yes, it can - committing money and effort to the process of preparing for business is part and parcel of being in a partnership.

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27
Q

Would a mere agreement to form a partnership be enough to form a partnership?

A

No, it would not. They would have to start preparing to open a business, but wouldn’t need to go so far as actually trading.

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28
Q

Does a partner in an ordinary partnership also have the right to manage the business?

A

Yes, according to PA 1890, each partner has equal rights to manage the partnership unless otherwise agreed.

29
Q

Which profession is prohibited from practising in partnership?

A

Barristers (with each other), who cannot share profits. They instead work in chambers.

30
Q

What does s2(2) and s2(3) PA 1890 state about sharing profits and the presumption of partnership?

A

s2(2): sharing profits is not enough by itself to make someone a partner
s2(3): sharing profits raises a presumption that a person is a partner.

31
Q

What are the exception to s2(3) PA 1890 about the presumption of partnership?

A

The presumption does not exist if they are receiving payment of:
- a debt from profits
- employee wages from profits
- the pension of deceased partner to a widow or child from profits
- interest on a lender’s loan at a rate that depends on the profits

32
Q

What 6 other factors may point to a person being a partner?

A
  1. They have a financial interest in the business
  2. They have the right to be involved in decisions affecting the business
  3. They have the right to examine the business’ accounts
  4. They have the right to insist on openess and honesty from fellow partners
  5. They have the right to block the introduction of a new partner.
  6. They have the responsibility of sharing in any losses.
33
Q

What is a salaried partner?

A

They have the title of ‘partner’, but are paid a salary rather than sharing in profits.

34
Q

What are the ordinary partnership formation requirements?

A

As long as the partnership fulfils s1(1) PA 1890, there aren’t any formal formation requirements, but it is recommended to prepare a proper partnership agreement.

35
Q

What are the ordinary partnership constitutional documents?

A

None needed.

36
Q

What are the ordinary partnership ongoing filing requirements?

A

There are no ongoing filing requirements for ordinary partnerships.

37
Q

To what extent are an ordinary partnership’s business affairs kept private or made public?

A

Ordinary partnerships are kept private.

38
Q

When does an ordinary partnerships cease to exist?

A

If expressly agreed, or if all but one partners leave or die.

39
Q

Does a partner in a limited liability partnership have limited or unlimited liability?

A

Limited liability partners enjoy limited liability.

40
Q

Does a LLP have a legal personality separate from its owners?

A

Yes, it does. The LLP would own the business’ assets, enter into contracts and employ people, rather than the owners.

41
Q

Does the LLP partner also have the right to manage the business?

A

Similar to PA 1890, each partner has equal rights to manage the partnership unless otherwise agreed.

42
Q

What is the name of the government authority that manages the process of forming an LLP?

A

The Registrar of Companies.

43
Q

What are the LLP formation requirements?

A

An LLP is formed by completing specified documents and filing them with the Registrar of Companies.

44
Q

What are the LLP’s ongoing filing requirements?

A

To protect creditors from not being able to get their money back from the LLP (as the owners will not be liable), LLPs must prepare financial accounts and publish them in the same way as a company. They may also need to have their accounts audited.

45
Q

To what extent are an LLP’s business affairs kept private or made public?

A

In order to prevent partners from using the LLP as a front to conceal their identity, the Registrar of Companies keeps a record of the name of the partners and must be notified of any changes.

The accounts will also be visible on Companies House.

The LLP agreement is private and not filed with the Registrar of Companies.

46
Q

How would an LLP cease to exist?

A

Because the LLP is a legal person separate to its partners, it will continue to exist even if it is dissolved, even if all its partners retire or die.

47
Q

What is the Limited Liability Partnerships Act 2000 supplemented by?

A

The Limited Liability Partnerships Regulations 2001, which contain the default rules which apply between partners unless they are overridden by agreement.

48
Q

Which Act has rules that LLPs and their partners are subject to, which normally apply to company directors?

A

Insolvency Act 1986

49
Q

Does a company have a legal personality separate from its owners?

A

Yes, it is a separate legal person.

50
Q

How many business owners are needed for a company?

A

Only one person is required to open a company.

51
Q

What is the difference between shareholders, members and directors in a company?

A

Shareholders and members: owners of a company
Directors: managers of a company

52
Q

Does the company owner also have the right to manage the business?

A

Yes, although in larger companies, there are often separation between the shareholders and directors.

53
Q

What is the process of forming a company called?

A

Incorporation

54
Q

What are the formation requirements for a company?

A

A company is formed by completed specified documents and filing them for publications with the Registrar of Companies at Companies House.

55
Q

What are the company’s constitutional documents?

A

The internal constitution is called the ‘articles of association’. Rules on whether members or directors make certain decisions and rules to protect the members from improper conduct by the directors are laid out in this document.

56
Q

What are the company’s ongoing filing requirements?

A

Companies must prepare financial accounts and publish them by Companies House. They may also need to have their accounts audited.

57
Q

To what extent are a company’s business affairs kept private or made public?

A

All documents are public on Companies House, including the articles of association.

58
Q

Can a director and shareholder lend money to the company and take security from the company on the loan?

A

Yes, according to Salomon v Salomon & Co Ltd [1897], the principle of separation means that a person can hold all the shares, be the director of the company and also lend money and take security from the company on the loan. They can also be employed by the company.

59
Q

In which name must a company’s insurance policy be taken out in?

A

The company’s own name, not the director’s or shareholder’s.

60
Q

What is the liability of the members for the company’s debts usually limited to?

A

It is usually limited to the amount that they have agreed to pay for their shares.

61
Q

How can a company cease to exist?

A

Through the process of dissolution. It won’t be affected by changes in the composition and identity of the members and the directors.

62
Q

What are the 4 types of companies?

A
  1. Companies limited by shares (public or private)
  2. Companies limited by guarantee
  3. Unlimited companies
  4. Community interest groups (CIG)
63
Q

What are companies limited by guarantee?

A
  • Owned by their members, but the members don’t own shares in the company (so aren’t shareholders).
  • Members guarantee to contribute a specified amount to the company’s debts if required.
  • Their liability is limited to the guarantee amount.
  • Usually charitable or not-for-profit organisations.
64
Q

What is an unlimited company?

A

An unlimited company is similar to a company limited by shares, with the difference that the liability of its shareholders is not limited.

65
Q

What is a CIG?

A

Community interest groups are created for a particular purpose, usually by businesses with social, community or environmental objectives, but which do not qualify as charities.

66
Q

What would a private company limited by shares have at the end of its name?

A

Limited or Ltd

67
Q

What would a public company limited by shares have at the end of its name?

A

Public Limited Company or PLC

68
Q

What is the main difference between a private and a public limited company?

A

A private limited company is prohibited from offering its shares to the public. Because PLCs can offer their shares to the public, they are subject to a much higher standard of regulation, in order to protect those who invest in them.

69
Q

What is the legislation governing companies?

A

Companies Act 2006
Companies (Model Articles) Regulations 2008 - default articles of association
Company Directors Disqualification Act 1986 (CDDA 1986) - period of disqualification for directors who has fallen below the required standard
Insolvency Act 1986 (IA 1986) - provides rules for winding up companies( both solvent and insolvent)

Business and Employment Law (16 decks)

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