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
T/F
when a partner retires they remain liable for any outstanding debts incurred while they were a partner, unless the creditor has agreed to release them from liability. and debts incurred after if the creditor knew them to be a partner and received no notice of retirement
True
Is a partnership dissolved in the following instance
Death/bankruptcy of partner
Yes
Is a partnership dissolved in the following instance
Expiry of fixed term partnership
Yes
Is a partnership dissolved in the following instance
Completion / termination of single joint venture
Yes
Is a partnership dissolved in the following instance
Subsequent illegality
Yes
Is a partnership dissolved in the following instance
Notice given by a partner if it is a partnership of indefinite duratio
Yes
Is a partnership dissolved in the following instance
Order of the court
Yes
What are members of the LLP
Agents
Advantages of LLP
Limited liability - not personally liable
What does a limited partnership require
at least one general partner who has control of management of the business and whose liability must be unlimited. other partners are not entitled to participate in management and liability is limited to the amount of capital invested
Is there a registration fee for setting up an LLP
Yes
what must be included on the incorporation document
name of lip
location of registered office
address of registered office
name and address of members of LLP
name of two designated members
Role of designated members
filing notices with registrar and register of people with significant interest
singing and filing partnership accounts
appointing auditors
Must an LLP comply with
Maintain register of charges and to register charges with registrar
Yes
Must an LLP comply with
Notify registrar of changes to membership designated members or registered office
True
Must an LLP comply with
Provide names of LLP on correspondence and outside place of business
Yes
Must an LLP comply with
Deliver confirmation statement to registrar
Yes
T/F
Members of LLP are rehired to prepare a report along same lines as directors report
False
How is an LLP dissolved/terminated
by agreement of the members unanimously
Options when LLP becomes insolvent
propose voluntary arrangement, apply to put business into administration or resolve to go into voluntary or compulsory liquidation
Y/N
LLP set up
an incorporation document signed by at least two subscribers must be sent to the registrar of companies
Yes
Y/N
LLP set up
Name and address of at least one designated member must be given
No - two designated members required
Y/N
LLP set up
Details of assets of LLP must be given on registration
No
Y/N
LLP set up
A statement detailing the level of contribution that will be required from past and present members in the event of winding up must be included
No
Right of partners
To be involved in decision making
Yes
Right of partners
To share in profits
Yes
Right of partners
To examine accounts
Yes
Right of partners
to insist on openness and honesty
Yes
Right of partners
To veto new parters
Yes
Right of partners
To be indemnified by fellow parters
Yes
What is partnership property
assets beneficially owned by the partners. it does not have to be in equal shares
A parter is an agent of the firm and binds the partnership by their acts in the partnership business provided…
the third party doesn’t know they lack actual authority and knows or believes them to be a partner
What must an LLP deliver to the registrar annually
Audited accounts and confirmation statements
