Business Models

Question 1

Does an LLP have a separate legal personality?

Answer 1

Yes - unlike a traditional partnership

Question 2

What is a key distinction between an LLP and a company in respect of its members?

Answer 2

• For companies, the members cannot be removed by a majority of others - shareholders cannot be removed in this way
• Whereas, for an LLP, members can be removed by majority of other members, provided an agreement between the members that this power exists

Question 3

What is the position on taxation of partnerships?

Answer 3

Tax transparency –> each partner is liable to tax as an individual on their share of the income or gains of the partnership

Partners in a partnership are liable to pay both income tax and CGT

The partnership itself is not liable to pay tax

Question 4

What is the tax position of an LLP?

Answer 4

An LLP is treated as tax transparent - it is treated as a partnership for taxation purposes

This means that LLP is not taxed, but the partners are
- each partner is taxed as an individual on their share of the income or gains of the LLP

Question 5

The provisions of the Economic Crime and Corporate Transparency Act 2023 now apply to LLPs

Answer 5

• LLP name must be not be connected with an criminal purpose, foreign government, contain a computer name, have similar name to another registered LLP
• Registered office must be an appropriate address
• LLP must have a registered email address
• If a person is a disqualified director, they cannot be a member of an LLP

When LLP makes a confirmation statement, it must confirm it is continuing business for a lawful purpose

Question 6

Can a company be formed by one person?

Answer 6

Yes, a company can be formed by just one person

Question 7

Under CA what are the requirements for directors of a private limited company?

Answer 7

• CA allows a private company to have only one director, providing that director is a natural person
• A public company must have at least two directors

Question 8

What are formalities for a partner leaving a partnership?

Answer 8

If one partner leaves, they should give notice all those who have previously dealt with the partnership

• It is possible for a former partner to become liable for partnership debts incurred after they have left
• if a partner leaves, a third party can treat all apparent partners as jointly liable to pay any new debt incurred, unless the third party is notified of the partner leaving

Notice
- actual notice to anyone partner has dealt with
- constructive notice by way of publication in London Gazette

Question 9

What are the provisions of a Partnership Act in respect of the death of one partner?

Answer 9

If one person dies, the partnership automatically comes to an end
- death of a partner automatically causes the entire partnership to dissolve
- bankruptcy of any partner = automatic dissolution

Question 10

Default provisions of Partnership Act

Answer 10

• Partnership commences when s1(1) PA satisfied
• Each partner is deemed to own a share in property belonging to the partnership
• Partners are entitled to share equally in capital and profits and losses
• Without an agreement, a partner is not entitled to a salary
• All partner decisions must be decided by majority
• a partner cannot be expelled by majority vote, unless ALL partners have previously expressly agreed that a majority can do this
• duty not to compete (no default provisions on non-complete)

Question 11

What decisions require unanimity under Partnership Agreement default provisions?

Answer 11

• changes to nature of partnership business
• introducing a new partner
• varying rights and duties of partners
• unanimous consent of all partners is required for a new partner to join the partnership

Question 12

What is the effect of a partner leaving the partnership?

Answer 12

The partnership is dissolved

• without agreement as to expulsion provisions, it is impossible to remove a partner without dissolving a partnership

Question 13

How can a partner bind the firm?

Answer 13

A partner is capable of binding a firm if they act with express authority or implied and apparent authority

• When a partner enters into a contract within the scope of the partnership business, all partners are jointly and severally liable for the obligations incurred

Question 14

What is the court’s discretion if a court action is commenced by a partner of a partnership?

Answer 14

The court has discretion to order a stay of proceedings
- for example, where the partnership agreement contains an arbitration clause