business structures

Question 1

S74 Insolvency Act 1986

Answer 1

shareholders of a limited company are, generally, not liable to a liquidator in the event of such a company’s insolvency.
- In certain situations, court can ‘pierce the corporate veil’ in the interests of justice; (e.g., if the company is a façade).

Question 2

what does/ doesn’t suggest the creation of a partnership

Answer 2

• sharing of profit
• sharing of profit and loss
• shared decision making

Does not show intention:
- loan
- not being ‘held out’ as a partner

Intention is not relevant

Question 3

Fiduciary duty between partners

Answer 3

• Honest and full disclosure (s 28 PA 1890)
• Unauthorised personal profit (s 29(1) PA 1890)
• Conflict of duty and interest (s 30 PA 1890)

Question 4

Contractual and tortious liability

Answer 4

Contractual liability: All partners are jointly liable for contractual obligations and debts incurred while they are a partner (s 9 PA 1890). The creditor must sue all the partners for the debt.

Tortious liability: In tort the partners’ liability is joint and several (s 10, 12 PA 1890). The creditors can choose who to go after for full amount, and that partner can recover the amount from the others. “Together we are jointly liable for 100% of the liability, AND each person individually is liable for 100%”.

Question 5

Liability for retired partner

Answer 5

• liable for debt incurred whilst they were a partner
• To relieve they must novate a new contract to which the creditors consent.

Question 6

What can a Former partner be liable for

Answer 6

Can be liable for debts incurred even after. Third party can treat all apparent parents as jointly liable , unless the third party has been notified by:

• actual notice: for those who dealt with partner
• constructive notice: publication in the London Gazette

Former partner not liable for debts to any third party who did not know them as partner before

Question 7

Liability for non partner holding out

Answer 7

Generally a non- partner is not liable

However s14- non partner can be liable if they held themselves out as a partner. Requirements:

1. representation
2. third party action
3. third party state of mind

There is liability for the NON- PARTNER NOT FIRM.

Liability for firm will occur under common law agency

Question 8

What happens if an individual acts without partnership permission. Partner v non- partner

Answer 8

Partner- s 5 PA 1890 applies so firm is bound

Individual is not a partner- s5 PA 1890 does not apply. Firm could be bound under common law agency.

Question 9

When will a partner bind a firm

Answer 9

a) the act is carriyng on business of the kind carried out by the firm

b) carrying on business in the usual way

Question 10

when will it not bind the firm:

Answer 10

• Third party know that partner was not authorised

-Third party did know or believe that the partner was a partner

Question 11

Non- partner binding firm

Answer 11

Apparent authority - At common law, an agent who has no actual authority may still bind the firm if he has apparent authority to enter into a contract.

• Apparent authority arises when the principal (the firm) represents or permits a representation to be made to a third party that a person has authority to bind the firm
• Once the principal’s representation has been made to the third party and they rely upon the representation, the principal is bound by the actions of that person.
• If the representation is that a particular person is a partner (when, in fact, they are not), then the firm is said to be ‘holding out’ that person as a partner.
• A person who has been held out as a partner has apparent authority to bind the firm in the same way as a real partner can.
• An example of holding out is in relation to an ex-partner, when the firm carries on using old letterhead (including that partner’s name) after they retire