Chapter 13 Flashcards
What are the three common structures that may be used to run a business?
- Sole proprietorship (sole trader)
- Partnership (w limited / unlimited liability)
- Company (w limited / unlimited liability)
Describe what is meant by a sol trader
- Simplistic most straightforward way to carry out business
- No separate legal identity from that of the individual
- No limit to liability of sole traders
- Losses made in first 4 yrs of trade can be carried back 3 years to offset against other income
State what needs to be considered when starting up a business
- Employment law - employer’s liability insurance = legal requirement & needs written statement of particulars within 2 months of employment
- How business premises will be operated
- Contract law - contracts will be needed!
- Financing - either bank loan / share issue / personal guarantee etc
- Business name
- Franchise . licence contracts
- VAT registration
- NICs
- International trade (duties etc)
- Records
Can a person commence their business in their home?
Yes, but if mortgage will need written consent of the building society / bank to use the house for business purposes - planning permission from the local authority may be needed
Should check insurance so that business assets are covered
Describe what is meant by a partnership
Where one or more persons go into business with each other.
Can be a limited partnership or a limited liability partnership (LLP)
Existence is a question of fact and law
No separate legal identity from persons that form it
It is an unincorporated body of persons
Need to have the intention of making profit!
Partners don’t have to be entitled to remuneration
What is a sleeping partner?
A partner who isn’t involved in the day-to-day operation of the business
Are partnerships able to determine their own terms and conditions?
Yes
Is a written partnership agreement required?
No - but advantageous (should include name, date it commenced, proportions of capital, how profits to be shares, meetings of partners, restrictions on activities etc)
Each partner is an agent of the firm, describe the different type of authority a partner may have when making contracts on behalf of all the partners
- Express authority - explicitly given power
- Implied authority
- Apparent authority - where a person isn’t a partner but is held out as one by the firm
Will also need to look at whether the other party knew that the partner had not authority
When is property “partnership property”?
If it was originally bought into the partnership by the partners who formed the partnerships or if it was bought with partnership money
An individual partner’s collective rights under the contract of partnership is know as what?
Partnership interest - the interest is a single chose in action ( is an item of private property)
Name the aways in which a partnership might come to an end
The mental incapacity, death or bankruptcy of a partner
Every time there is a change in membership of a partnership, there is a dissolution of the existing partnership and a formation of a new one
When a partnership comes to an end, how will the partnership property be distributed?
1) Pay off external debts
2) Repaying the partners any advance made over and above their capital contributions
3) Repaying the partner’s capital contributions
4) Anything left over is then repaid to the partners in the profit-sharing ratio
What are the legal and tax implications of closing down business for sole traders and partnerships
- Need to make redundancy payments & provided necessary tax forms
- Rent must be paid for premises
- Payments may need to be made to terminate supply agreements early
- “closing year rules” for income tax purposes must be followed
- Must notify HMRC for de-registration from VAT within 30 days
What is a limited partnership?
A partnership when at least one partner has full, unlimited liability but one or more have limited liability
Limited partners can’t take part in management / withdraw their capital / bing the partnership in a contract with a third party / dissolve the partnership by notice
What is a limited liability partnership?
A partnership where all partners enjoy limited liability but still carry on business through the medium of a partnership.
Main difference is that it’s a corporate body with a separate legal entity from partners. Despite being a corporate body - it’s treated as being transparent for tax purposes
Has to be incorporated
has to have 2 designated members who take responsibility for the compliance aspects (eg companies house / accounts etc)
Each member is an agent of the LLP (has authority)
LLP has perpetual succession
Do partnerships have to day SDLT when transferring from an ordinary partnership to an LLP?
No
