Chapter 6 - Types of trade Flashcards
legal status of a sole trader
Business is a separate accounting entity, but is not legally distinct from the person who owns it
what are the following advantages of
- no formal set up procedures
- Independence and self-accountability
- Personal supervision
All profits accuse to owner
sole trader
what are the following disadvantages of
- If get into debt personal wealth may be lost
- Expansion usually only possible by ploughing profits as further capital
- Highly dependent on individual (hard during holiday/sickness)
- Death of proprietor may mean have to sell to pay tax / family members don’t want
- Individual may only have one skill
- small size, lack of diversification, absence of economies of scale, problems raising finance
sole rader
Partnership definition
relationship which subsists between persons carrying on a business in common with a view of profit
When does a partnership begin
when the partners agree to conduct their business activity together
t/f
if the purpose of the common endeavour is to gain business experience, there is no partnership
True
T/F
‘Limited company’ and ‘registered company’ can only be applied to registered company
True
In the absence of any partnership agreement, how are profits and losses split
equally - if agreement states how profits are split but not losses assume losses split the same
Parternship Act - how is the partnership managed
every partner is entitled to take part in managing the firms business, ordinary management decisions can be made by a majority of partners
partnership act - how are changes in business agreed
any decision must be unanimous
Partnership Act T/F
the firm must indemnify any partner against the liabilities incurred in the ordinary and proper conduct of the partnership business or doing anything necessarily done for the preservation of the partnership property or business
True
Are partners entitled to remuneration for acting in the partnership business
No
When may the partnership agreement be varied
with the consent of all the partners
Where must records and accounts be kept
main place of business - must be open to inspection by all partners
When is interest on capital paid
None apart from by agreement - partner can get 5% advances beyond original capital
When can new partners be introduced
with unanimous consent of existing partners
When can partner be expelled
by a majority of votes within the partnership
How long does authority of partners continue after dissolution
so far as it is necessary to wind up the partnership affairs and complete transactions already begun.
Do partners owe a fiduciary duty to the partnership
Yes
T/F
partners are jointly and severally liable for the acts of their fellow partners in so far as they bind the firm
True
How do partners have authority to find the firm
based on agency - authority may be actual (express/implied) or apparent
When will partners not be bound by other partners acts
if they have no authority to act for the firm in that particular matter and
the person with whom they are dealing either knows they have no authority or does not believe them to be a partner
T/F
Where a parter pledges the credit of the firm for a purpose which has no connection with the firm’s ordinary business, the firm will not be bound unless they have actual express authority to do so
True
T/F
if any restriction is placed on a partner’s authority to bind the firm, no act done in contravention of that restriction is binding on the firm where the third party has notice of the restriction
True
