Business Intro

Question 1

Partnership

Answer 1

• the relationship which subsists between persons carrying on a business in common with a view of a profit
• s. 1 Partnership Act 1890
• no new entity created
• unlimited personal liability (joint or joint and several)

Question 2

Limited Partnership

Answer 2

• Atleast one general partner and one limited partner
• no separate legal entity
• Limited Partnership Act 1907
• General Partner: unlimited personal liability
• Limited Partner: limited liability (if not involved in day to day management of partnership)
• Private Fund Limited Partnership: there is a list of activities a limited partners can be involved in without being “involved in management”

Question 3

Limited Liability Partnership

Answer 3

• Separate legal entity
• Members taxed as partners (liable to pay to pay tax on their share of LLP income)
• Limited Liability Partnership Act 2000
• Liability limited- to that agreed under terms of partnership agreement

Question 4

Joint Venture

Answer 4

• Collaborative commercial agreement between two or more parties to pursue a common business goal:

1. JVC - limited liability company
   - (parties are SHs in company, liability limited to amount unpaid in shares). Most suitable if many parties
2. Partnership JV - partnership/limited partnership/ LLP
   Pro: 1) few publicity req, 2) possible tax advantages
   Con: 1) no limited liability if partnership, 2) harder to raise external finance 3) harder to change participants mid stream
3. Contractual JV - contractual co-operation agreement
   Pro: 1) used for collaborative research and development projects, 2) Possible tax advantages over formal partnership

Question 5

Factors influencing choice of medium

Answer 5

SOLTRT

1. Set up Costs: (incorporation and legal fees for company and llp)
2. Ongoing Costs: (higher for companies, a bit for llp- subject to higher regulation and disclosure req as limited liability - higher admin costs)
3. Liability on Insolvency: avoid personal liabilities
4. Tradition: eg. Architects/accountants/law = partnerships
5. Raising Finance: easier for companies
6. Tax: companies = corporation tax on profits
   Partnership= profits taxed in hands of partners
   i) individual partner- pay income tax and capital gains tax on their share
   ii) corporate partner- pay corporation tax on their share