Business Law 1: General Partnerships Flashcards
Taxation for different business structures
Sole Trader + Partnerships + LLPs
- income tax
Companies
- corporation tax
- shareholders: income tax on dividends
What charges can different company structures grant?
Companies + LLPs
- fixed charges
- floating charges
Sole Traders + General Partnerships
- fixed charges
This makes it easier for companies and LLPs to take out loans
How many directors do Companies need?
Private Companies
- 1+ directors
Public Companies
- 2+ directors
When is a General Partnership formed?
Persons
- either real of business
Carry on a business in common
- business is buying or selling goods, or providing services for fee
- in common = each have right to make decisions, share in its gains etc.
With view to make profits
- intend to make profits even if they don’t
(there is no formality requirement, can create partnership without intending to)
Things that are not required
- partner not required to make a contribution
- no limit on number of partners
What might be taken as prima facie evidence of a General Partnership (and exceptions)
If party receives share of profits taken as Prima Facie evidence of partnership
Exceptions
- receipt constituted repayment of debt
- receipt was remuneration of employee or agent
- receipt constitutes an annuity (fixed sum paid annually) to survivor of partner, or to a person who has sold the goodwill of the business
Agreement to share losses is not prima facie evidence and lack of such agreement does not prevent formation of partnership
Does jointly held property create partnership?
- no even if they agree to share profits
- because they are not running a business together
What authority do partners in General Partnership have to bind firm?
Every partner is an agent of the partnership and can bind principle only if the act with authority:
Actual Authority:
- act done in a way showing an intention to bind the firm,
- act by any person actually authorised by firm to undertake the act (through PA or vote)
Implied Actual Authority
- other partners allow partner without express actual authority to regularly do something
Apparent/Ostensible Authority
- firm bound by acts of partner carrying on in the usual way business of the kind carried out by the firm (objective - reasonable person test), UNLESS
- partner has no authority to act, and
- other party (1) knew partner has no authority, or (2) did not know or believe they were dealing with a partner
How can new partners join / old partners be expelled (General Partnership)
- new partners can only be added with consent of all existing partners
- partners cannot expel a partner unless that power is expressly agreed in partnership agreement
Liability for new partners (General Partnership)? Can this be modified?
incoming partners are not liable to credits of partnership for anything done before they became a partner (unless agreed by contract)
Rule cannot be modified in partnership agreement as creditor is not party to that
Liability for outgoing partners and how might these be discharged? (General Partnership)
Debts from before Retirement
- Former partners remain liable for debts/obligations incurred before they left.
- firm can indemnify them so they are not liable to firm (but will still be to 3rd parties)
- 3rd party can agree to release them of liability (novation)
Debts after retirement
- 3rd parties can treat all apparent partners as liable until given notice of change (of outgoing still liable)
- old partner will remain liable unless they give:
- Actual notice of retirement to existing creditors, and
- publication notice in London Gazette to everyone else
- if old Partner was not know to 3rd party then not liable
Rule cannot be modified in partnership agreement as creditor is not party to that
How could someone who is not a partner be made liable as if they were?
If person holds themselves out as being partner (and is not) they are liable to those specific 3rd parties.
Same rule to those who knowingly allow another to hold them out as a partner
- this would effect retiring partners who do not give proper notice or fail to ensure their name is taken of notices, websites, stationary etc.
When is something partnership property?
Is partnership property (unless contrary intention)
- bought with partnership money
- property titled in partnership name
Not Partnership Property
- if no intention that it will be partnership property
- property brought in at beginning only if expressly or impliedly agreed
How can Partnership Property be used (General Partnership)
- can only be used for partnership purposes (not personal use) and in accordance with PA
- cannot be taken by creditor of an individual partner to satisfy personal debts of individual partner (but can get charging order to individual partners interest in the firm)
How are profits shared in General Partnership? How can they be distributed?
Always shared equally unless provided otherwise in partnership agreement
Partners cannot distribute firms profits or capital before dissolution (unless agreed otherwise)
Partners can assign right to share of profits (although assignee will not have management responsibility or be liable for firms debts/obligations)
How are losses shared in a General Partnership
Partners must contribute equally to losses (unless provided otherwise)
Dissolution
- remaining losses to be split in proportion in which partners were entitled to share of profits
- even if PA says otherwise
