6: Types of Trade Flashcards
What types of trade do we look into?
Sole traders
Ordinary partnerships
LLPs
Registered companies
Key info on sole traders?
Single person owns and runs the business
May engage employees or work independently
No distinction - not a separate legal entity
Ads of sole trader?
Keep all profits
No formal procedure to set up
Independnece
Self accountability/lack of regs
Dis of sole trader?
Risk - has to pay all debts
Limited options for capital injection
High dependent on owner
Success dependant on owner’s skills
3 types of partnership?
Ordinary
LLP
Limited - now very rare
Essentially two sole traders running together
What is the definition of partnership?
The relation which subsists between persons carrying on a business in a common view of profit
- PA 1890
What makes a ‘business’ a business?
Includes every trade, occupation or profession
Must be some joint business activity, and deffo some activity! Owning property not enough
Can be a single transaction
Date bank account is opened is when a partnership begins
What are not partnerships?
Charities or mutual benefit schemes
- Business must yield a profit!
Why form a partnership?
Subject to legal rules which affect individuals, not companies
Special rules that only apply to partnerships
Become a ‘firm’ - companies cant do that!
Why form a partnership?
Subject to legal rules which affect individuals, not companies
Special rules that only apply to partnerships
Become a ‘firm’ - companies cant do that!
Two ways a partnership is formed?
Informally
Partnership agreement (contract)
What is the Partnership Act 1890?
Sets out the rights and duties of the partners
Only if provisions of agreement do not deal with issue
Can be overruled by any express agreement between partners
Main acts of PA1890?
Sharing of profit and losses
Every partner can take part
Must indemnify members
No remuneration
Agreement varied with content of all partners
Any change in natural of business must be unanimous
No interest on original capital
New partners admitted with approval of all
Partner can be expelled - majority
Affairs can be wound up
Capital deficiency is shared between partners in ratio
Records kept at place of business
What are fiduciary duties?
Every partner is an agent, must carry out work in good faith
Can be liable otherwise
How can a partnership automatically end?
Death or bankruptcy of partner
Expiry of fixed term
Completion of a single joint venture
Continuation would be illegal
Parter gives notice
Order of the court
Anything in partnership agreement
How can the court bring partnership to an end?
Mental disorder or permanent incapacity
Partner engages in prejudicial activity
Partner persistently breaches agreement
Business carried on at loss
Just and equitable to do so
Two kinds of authority of partners?
Express or actual
Implied or apparent - an agent
Two kinds of authority of partners?
Express or actual
Implied or apparent - an agent
What happens if a partner exceeds authority?
If it is within the usual business of partnership, it’s fine, unless:
- they have no actual authority
AND
- third party either knows they have no authority, or does not believe them to be a partner
What is joint and several liability?
Outsiders can take action individually or collectively
If damages are recovered from one party, other partners liable to contribute equally to amount paid
Who is liable in a partnership?
Every parter is jointly and severably liable
New partners - no liability for before they came
Retiring partners - liable until notice of retirement
Change or partners - old partners liable until third party has notice
Novation - the continuing or new partner will take on liability for debt of outgoing partner
Indemnity - continuing or new partner may agree to identify outgoing partner
Other key features of partnerships?
Limits on transfer of share
Can only have fixed charges for borrowing - no floating
Partners can withdraw capital
No admin requirements for meetings
Can dissolve automatically or by agreement
Pays income tax!
What is an LLP?
Incorporated partnership with legal personality sepeate
Less regulation that companies
LLP Act 2000
How to form an LLP?
Incorporation document sent to registrar, must include:
- name
- location
- address
- name and addresses of memmbers
- statement saying which members are designated members
- statement by solicitor or someone saying requirements of Act have been satisfied
Certificate will be issued!
What covers LLPs?
LLP regs 2001
AND
Partnership act 1890
When an issue isnt covered
LLP: members?
No maximum no of members
New members admitted with agreement
A person ceases by giving reasonable notice
- notify registrar in 14 days
Every member can take part in management
Members can apply to court in unfair prejudice
LLP: books and records?
Obligations same for companies
- SMEs get same exemptions from audit etc
No requirement for directors report
LLP must
- maintain register of charges
- notify registrar of changes to membership or office
- name, on correspondence and outside
- confirmation statement
LLP: authority or liability?
Partnership is primarily liable
Every member is agent though and can bind / not bind partnership by same conditions as regular partnership
Members will not incur personal liability
- each owes duty of care
- each can be liable for F or W trading
LLP: termination and insolvency
Done by agreement of the members unanimously
When this happens, members may:
- propose voluntary arrangement
- put company in administration
- liquidation
Withdrawals in two years prior can be clawed back if member knew it would become insolvent
Members may be called on to contribute to the assets of the LLP to extent the agreed to
What is an LLP?
Artificial legal entity with perpetual succession.
Can hold property in its own right, enter into contracts in its its own name, create floating charges, sue and be sued
Liability limited to the amount of capital they have agreed to contribute
