Chap 6: Types Of Business Org Flashcards
Sole trader/sole partnership
The owner is the business- liable for all the assets and is liable for all the debts
No legal formalities required to set up
Inappropriate for large businesses or risky businesses
General partnership
-Defined by PA 1890
-Relationship between persons carrying on a business in common with a view to profit
Default position if a partnership is not formed under either of the two acts (LP and LLP)
Limited partnership
Formed under the limited partnership act 1907
Limited liability partnership
An artificial legal entity where the liability of the members is limited to the amount they have agreed to contribute
Types of partners
General partner
Sleeping partner
Salaried partner: limited involvement in partnership decision making & profit shares
Fixed share partner: is a salaried partner who also receives a designated share of profits.
General partner
Actively involved in dAy to day operations
Sleeping partner
Takes no active part in the running of the business
However is jointly and severally liable for the debts & contracts of the business
Limited partner is a limited partnership
Contribute ls a special amount of capital
Liability is limited to that amount
Cannot take part in mgmt of company
Salaried partner
Will receive a fixed amount in income. Not a real partner unless he also receives a share of the profit
Characteristic of a partnership
Business must carry on with a view of profit
Entitled to share in the profit
The following do not necessarily create a partnership:
-joint ownership of property
-the sharing of gross returns
-the sharing of expenses
Continue
The partnership begins as soon as the partnerd start their business activity. The actual agreement may be either made earlier or later than that date
No formalities are required to form general partnership, no documentation and no registration
PA 1890 applies to every partnership whether written or oral. Many acts apply unless they are excluded by partnership agreement.
PA act says to share profit equally but in cases where they contribute diff amounts then they need to agree specific profit sharing arrangement
Partnership agreement is a contract. Like any contract it may be written or implied
Note
Partners are contractually bound by the terms they have agreed. Even if they conflict with PA 1890
Limited partnership under limited partnership act 1907
In which liability of one or more partners is limited to their capital contribution
Following conditions:
-must be one partner with unlimited liability
-Partnership must be registered with the registrar of companies as a limited partnership
-Limited partnership may not participate in the mgmt of the business, if they do they forfeit their limited liability
-A LImited partner has no power to bind the firm to contracts (not agent of firm
Agency relationship
Each partner acting as agent of all the partners
- the express authority of a partner is set out in the partnership Agreement
- the implied authority is set out in S5 of PA 1890
S5 states that every partner is agent of the firm n other
Implied authority
Under s5 every partner is presumed to have implied authority
-sell the firms goods
-buy goods necessary for or usually employed in the business
- receive payments of debts due to the firm
-engage employees for the business and also to discharge them unless other partners object
- employ a solicitor to act for the firm in defence of a claim ir in the pursuance of a debt
