Chapter 6 - Types of trade

Question 1

Sole Trader - Advantages

Answer 1

• No formal set up process is required
• Independence, privacy
• Personal supervision
• Profit accrue to sole trader

Question 2

Sole Trader - Disadvantage

Answer 2

• Unlimited liability for losses of the business
• Reliance on the individual results in long hours
• Succession issues
• Skill of trader

Question 3

Partnership - Fiduciary duties

Answer 3

These duties are;

• Act in good faith
• Not to exercise a legal right for an improper motive
• Not to keep profits derived without the consent of other parties
• To avoid conflicts of interest without full disclosure

Question 4

Partners’ liability and authority

Answer 4

Partners are jointly and severally liable for the acts of their fellow partners as they bind the firm

Question 5

Partners’ liability for debts

Answer 5

A partner’s liability depends upon the date when the debts were incurred

Debts incurred before he joined - liable only after he becomes a partner

Debts incurred whilst he is a partner - liable for debts incurred whilst he is a partner even after he has left

Debts incurred after he leaves - liable if do not give creditor notices of retirement

Question 6

Dissolution of the partnership

Answer 6

In the absence of contrary contained in the partnership agreement, the partnership is dissolved if:

• death or bankruptcy of a partner
• Expiry of fixed-term partnership
• Completion or termination of joint venture
• Order by the court

Question 7

Limited liability partnerships

Answer 7

A LLP is basically a hybrid between a company and a partnership.

The key point is that it has a separate legal personality and the benefits of limited liability

Question 8

LLP - Formation

Answer 8

The incorporation document must be filed and submitted with the following:

• The name of the LLP
• Location of registered office
• The address of registered office
• Name and address of members
• The names of designated members responsible for signing accounts

Question 9

LLP - Partnership agreement

Answer 9

A LLP is not required to have a formal partnership agreement

Question 10

Regulations of a LLP

Answer 10

• Must keep and retain accounting records and prepare and publish accounts

-Must maintain a register of charges

• Notify registrar of any change to membership within 14 days
• To provide name on correspondence
• To deliver confirmation statement

Question 11

Authority of partners in a LLP

Answer 11

The LLP will not be bound where:

• the member does not have authority
• The third party is aware that he does not have authority

Question 12

Dissolution of an LLP

Answer 12

A LLP, be dissolved or terminated by agreement of members unanimously.

Where the LLP becomes insolvent, members may propose a voluntary agreement and apply to put company in administration