Business Mediums & Partnerships Flashcards
Who can a creditor sue for partnership debts?
Joint & several liability → The firm, the partner who signed the contract, or any partner active when the debt was incurred.
How can a retiring partner escape liability?
- Indemnity from other partners
- Novation agreement with creditor
- Actual Notice [direct notice to clients]
- Constructive Notice [London Gazette]
- No holding out
Is a new partner liable for old debts?
No! Only for debts incurred after they joined.
Q: What’s the difference between actual and apparent authority?
Actual authority: Acts expressly approved by the firm (e.g., a partner signs a contract).
Apparent authority: Acts that seem authorized (e.g., a partner ordering supplies in the firm’s name).
Q: What is joint and several liability?
A: Creditors can sue:
✅ The firm
✅ Any individual partner
✅ All partners together
(Even if one partner pays the full debt, they can claim contributions from others!)
Q: How are most partnership decisions made?
A: Majority vote – but unanimous consent is needed for:
Changing the nature of the business.
Adding a new partner.
Amending the partnership agreement.
Expelling a partner
Q: Can partners take a salary?
A: ❌ No! Only profit shares, unless agreed in writing.
Q: How is a company formed?
- INO1, Memorandum, Fee and Articles [if not default articles]
Q: Who manages a company?
A: Directors (day-to-day) + Shareholders (major decisions, e.g., selling the company).
Private Ltd Companies Members
At least 1 member
No secretary needed
Public Ltd Companies Members
At least 2 directors
Secretary
Termination of a company
3 months no action
Liquidation [vol and comp]
What is limited liability?
The shareholders of a validly incorporated company will be liable for the debts of the business up to the amount that they have agreed to invest in the company.
If a private company limited by shares or public company does not submit any articles with the application, then what happens ?
The Model Articles for private companies limited by shares will automatically apply.
When is it possible to pierce the corporate veil ?
In the case of fraud or a sham, it is permissible to pierce the corporate veil.
Whats included in company consitution
Articles, Memo of Association, Resolutions and Agreements
Under a limited partnership, can the limited partner retain limited liabilotu and also participate fully in the management?
No.
A company keeps the original articles it adopted at incorporation indefinitely, unless
it actively changes them by special resolution
What does the memorandum include
Statement ‘wish to form a company and subscribe for…’
How are profits of LLP taxed
Income tax on share of the profits
Nominal value vs Market Value
Nominal Value vs. Market Value:
The nominal (par) value of a share is its face value (here, £1 per share), fixed at issuance.
The market value is what investors pay for the shares (e.g., £1.50 in 2019, £2 in 2020).
If shareholders rights are infringed in a company then who can they sue ?
Any members of the company
If a company’s shares are fully paid up and the company owes money, can shareholders be held personally liable for the debt?
No. Shareholders’ liability is strictly limited to any unpaid amount on their shares under the principle of limited liability. Since the shares in this case are fully paid, the shareholders have no further financial obligation - creditors cannot pursue them for the company’s debts. The debt remains solely the company’s responsibility.
Under a partnership, in the absence of a written agreement what is the default legal position for working ?
No obligation to work full time and no automatic rights to ill health or injury time off
