Business 2 Flashcards
Does a person loaning money to a sole trader turn the organisation into a partnership?
No
What is the definition of a partnership?
Relationship that subsists between persons carrying on a business in common with a view to profit.
Only exist if the business intends to make a profit
What is prima facie evidence of a partnership?
Taking a share of the profits of a business
What is tax due on?
Taxable income minus allowable expenses
What are deductible expenses?
1) out of income, not capital nature
2) be wholly and exclusively incurred for the purpose of trade
3) not be expressly disallowed by law
When is an expense wholly and exclusively incurred for the purpose of trade?
Purpose must be for trade - if dual purpose, expenditure is not deductible.
Does not necessarily need to be incurred in the trade.
What are some examples of deductible expenses?
Payments made in the course of a business to employees for salaries
Expenses incurred to prevent benefits in kind
Recurring expenses (rent)
Interest on a business loan
Costs of raw material
What are advantages of a limited company?
Limited liability - members are not liable for debts of business, except for unpaid nominal value of shares
Keeps personal and company matters separate
Company has separate legal personality (and therefore not affected by bankruptcy / departure of shareholders)
What are some disadvantages of a limited company?
Formalities that must be complied with (filing obligations)
Must be registered at CH and incorporated with relevant requirements
Double taxation (corporation tax, employee income tax / dividend taxation)
What are some advantages of a general partnership?
No burdensome formailities - partnership is established by virtue of partnership carrying out business in common.
No double taxation (only income tax for partners).
What is recommended when entering into a partnership?
A partnership agreement / deed
What are some disadvantages of a general partnership?
Liability is unlimited - partners are jointly and severally liable for all debts of the business (their private property and money can be used to satisfy any responsibility).
No separate legal personality - business will be affected by death / bankruptcy / departure of partners.
Partners are jointly and severally liable for each other’s acts in the business - partners will be responsible for another partner’s wrongdoing within the business.
What are some advantages of a limited liability partnership?
Limited liability - members are not liable for debts of the business, apart from initial capital contributions and whatever is agreed in the partnership agreement.
Separate legal personality - death / bankruptcy / departure of a member does not affect the business.
No double taxation (only income tax for partners).
Would not come to an end when partners exit / die / become bankrupt.
What are some disadvantages of a limited liability partnership?
Requires adherence to formalities as set out in law.
Must be registered at CH and incorporated in accordance with relevant requirements.
No separation between personal and business affairs.
What is the consequence where there is no partnership agreement?
The rules under the PA 1890 apply to the partnership, how it needs to be managed, how profits are to be shared, the rights and obligations of the partners etc.
