Chapter 6 - Types of trade Flashcards
What are the advantages of being a sole trader?
No formal procedures
Independence
Self-accountability
Personal supervision
All profits accrue to owner
What are the disadvantages of being a sole trader?
Personal wealth may be lost if debts called in
Expansion requires ploughing back of profits
High reliance on individual
Problems raising finance
No economies of scale
Lack of diversification
What’s an advantage of a written partnership agreement?
Sets out details which are not otherwise implied by law
What does the partnership act 1890 set out?
Basic rights and duties of partners
e.g. share profits
veto new partners
take business decisions
Do partners owe a fiduciary duty to the partnership?
Yes
How are partners liable?
Joint and severally liable for the acts of their fellow partners in so far as they bind the firm
Therefore necessary to consider authority of partners to bind the firm, based on principles of agency
What does the Partnership Act 1890 provide of each partner?
Each partner is the agent of the partnership and their fellow partners for the purpose of the partnership
Authority of partner my be actual/apparent
What does the Partnership Act 1890 provide that all firms and partners are bound by?
Bound by all acts of the partners for carrying on in the usual way business is carried out
Applies unless partner has no authority to act for the firm in a particular manner and that the person who they are dealing with knows this
How have the courts interpreted the binding act?
Should be done in the name of the firm, for the purpose of the business of the firm and by a person who purports to act as partner
What instances does the Partnership Act 1890 provide a partnership is dissolved?
Death/bankruptcy of a partner
expiry of a fixed term partnership
Completion /termination of a single joint venture
Subsequent illegality
Notice given by a partner
Order of the court
What happens if a partnership is in default on any secured loan?
Creditors may take action against the partners individually or sue the partnership
What are LLPs governed by?
LLP act 2000
What is an LLP?
Incorporated partnership that has a legal personality separate from its members whose liability is limited
How is an LLP created?
Created by the registration with the Registrar of Companies of a lawful business carried on by 2+ people with the view of making profits
What must be in incorporation docs?
Signatures of min 2 subscribers
Name of LLP
Location and address of registered office
Names and addresses of all members
Names of 2 designated members responsible for signings notices
Is there a max limit on number of members of an LLP?
No, new members admitted by agreement of existing members
How does a person cease being a member?
Giving reasonable notice to the other members
Do changes of membership affect the existence of an LLP?
No, but must be notified to Registrar within 14 days
Is an LLP required to have a formal partnership agreement?
No but usually will
Doesn’t have to be filed with Registrar
Can every member of an LLP take part in management and take on duties/responsibilities of directors?
Yes, subject to partnership agreement
How do LLPs keep records?
Same as a company
No requirement to provide equivalent of a director’s report
Must maintain register of charges
Register new charges with Registrar
What is an LLP primarily liable for?
Debts and obligations of firm’s business
Do members of an LLP face personal liability?
No
What are the responsibilities of designated members?
Filing notices with Registrar
Filing notices regarding Register of People with significant interest
Signing and filing partnership accounts
Appointing auditors
What happens if a partnership becomes insolvent?
Bankruptcy brought on individual partners
Under the LLP Act 2000, what is every member an agent of?
LLP only
Do partners have a statutory right to remuneration?
No
How are partnership profits shared?
Equally in absence of excess provision
When does a partnership begin?
When the party has agreed to conduct business together
When can the partnership agreement be varied?
With consent of all parties
Can any partner (whatever their share of profits) insist on the partnership assets being realised and any surplus being distributed (after payment of debts) to the partners?
Yes
In the event of there being a capital deficiency, will the remaining partners of the firm bear the loss equally?
No
