Business Structures - Problem Q Flashcards
Unincorporated legal structure
- no separate legal entity from its members
- unlimited liability
-sole trader or partnership (GP and LP)
Incorporated legal structure
- legal entity of its own
- limited liability
-LLP
-Company
Salomon v Salomon
Established corporate veil principle : company is validly incorporated even if it’s a 1 person company
It’s a metaphoric veil with company on 1 side + directors & shareholders on the other and liability doesn’t pass thru (seperate as company is regarded its own legal person)
Prest v Petrodel Resources
Unique case that ‘pierced’ the corporate veil
Divorce settlement case
S24 of matrimonial causes act allows to disregard corporate veil for matrimonial cases
Exceptions to corporate veil (piercing the veil)
1) when company is established as a sham(a front) -e.g. to commit fraud
2) when company is established as sham to avoid contractual/other obligations
Jones v Lipman
Exception to corporate veil
Created a firm to avoid selling property
Gilford Motor v Home Ltd
Exception to corporate veil
Avoiding a property contractual term by getting putting wife’s name for business
Adam’s v Cape Industries
Companies part of group of companies , treated as separate legal entities
Corp veil only pierced if corp structure is a sham - it was in this case (asbestos case)
Sole trader advantages & disadvantages
Advantages:
-convenience
-informality
-privacy
-control
Disadvantages:
-unlimited liab
-hard to raise finance
-not suitable if business req multiple individuals inputs
General partnership advantages + disadvantages
Advantages:
-shared ownership of assets + profits/losses
-light regulation
-shared involvement + responsibility
-more partners= more capital
-low cost + easy to set up
-privacy (not req to publish partnership agreement)
- tax advantages
-easy to dissolve
Disadvantages:
-partners are agents for each other (one partners actions impact the others)
-unlimited liab (jointly & severally liable)
-may still be hard to raise capital
Partnership definition
Section 1 Partnership Act 1890- the relation which subsists between persons carrying on a business in common with the view of profit
Valencia v Llupar
Established principle that parties entering partnership must have clear intention
In this case no proper agreement was signed so partnership never happened
Khan v Miah
Established that firms still need a partnership agreement begins even before trading has started
In this case partnership came into existence when property was punched with aim of opening restaurant
Equity partner
Share profits after paying all expenses (they care more about business as they invest their own money)
Stekel v Ellice
Salaried partner
M Young Legal v Zahid
Sleeping partner - invests capital but doesn’t participate in daily operations + management
Duties of partners to each other
1) general care + honesty
2)disclosure
3)account (keeping track of financial reports)
4)not compete (don’t engage with activities that contradict business aims)
Law v Law
Duty of disclosure
2 brothers , 1 sold shares w/o discussing certain assets
Don King Productions v Warren
Duty to account
What are the rights of partners? (Default)
S24 PA 1890
Management:
-all can participate
Financial:
-profits/losses shared equally
-no additional remuneration
Disputes:
-majority vote wins
-must be agreed by all to change firms business tho
Partners:
-all must consent to new partner
-no power to expel member
-partnership terminates on death/bankruptcy
What should partnership agreement/deed cover?
-management
-sharing of profits/losses
-any additional remuneration
-valuing their personal contributions
-termination of partnership procedure
-expulsion grounds
Apparent authority
Means a third party can hold a principal liable for actions of an agent , even if agents actions exceeded their actual authority
As long as it’s within ordinary course of firms business practices
Mercantile Credit Co v Garrod
Example of apparent authority
Partnership agreement prohibited Y from selling cars, yet he still sold a car
He didn’t have actual authority but had apparent authority
Hudgell , Yeates & Co v Watson
Partnership must be terminated if continuation is illegal
In this case solicitor (partner) didn’t have practicing certificate so had to terminate partnership n start a new one w/o him
