Choice of business structures Flashcards
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What statue for ordinary partnership?
Partnership Act 1890
Definition, ordinary partnership
PA 1890 S1(1): a relation which subsists between people doing business together with a view of profit
rules of equity and common law will continue to apply unless inconsistent with PA.
PA 1890 S46
definition: when we say persons… (with case)
We include companies Newstead v Frost
defnition: When we say business s45 PA 1890
‘every trade, occupation or profession
what does s45 exclude (for businesses as in definition) (with case)
not for profit organisations which are unincorporated
wise v perpetual trustee co
In definition what do we mean by ‘In common’ (with case) (clue husbands and wives)
saywell v Pope. Participation in the business
- Saywell and Mr Prentice were partners
- 1973: expanded involvement of wives
- 1975: formal partnership agreement formed
- inland revenue didn’t accept wives as partners pre ‘75. court agreed.
- more was needed to evidence partnership
In definition what do we mean by ‘with a view to profit’ (with case)
newstead v Frost
- David frost formed partnership with bahamian company to avoid tax
- inland revenue said it didn’t constitute a view to profit
- HoL disagreed- profits were derived from these activities. tax avoidance didn’t affect basic idea
PA 1890 S2(3). participating in net profits is not conclusive evidence of partnership. what else is needed? (with case)
Saywell v Pope:
- rights to sign cheques
- putting capital into business
- rights to draw money from firm (get money you put in back).
Other features of partnership:
- Unlimited liability: PA 1890 S9
- Mutual agency s5
- Unlimited number of partners
- Formal agreement not essential (if exists, is same as contract).
PA 1890 S19
Mutual partners rights and duties, whether decided by agreement or PA, can be varied by consent of all partners. consent can be express or inferred
Duties under PA 1890
s. 28: duty to render acounts to each other
s. 29: account for private profits
s. 30: duty not to compete with firm
RIGHTS under PA 1890
s24(1) Equal share of profits and losses
s24(5) every partner entitled to take part in management
s24(8) one partner one vote: simple majority in most cases
Statute for limited partnerships
LPA 1907
how diff is LPA different from PA
most features of ordinary partnership apply here
rules of equity and common law will apply to limited P. (statute)
LPA 1907 S7
s.4 (2) LPA 1907
a limited P. must consist of 1 or more ‘general partners’-(unlimited liability)
the rest are called limited partners: limited liability (limited to amount contributed)
Limited P. must be registered with registrar of companies. (statute plus reason)
s 5 &8 LPA 1907
Reason: so creditor of firm can discover identity & liability of limited partners.
restrictions of limited partners (plus statute)
s6(1):
- can’t take part in management or else they become general partner
- however, they can inspect books of firm, examine state & prospects of business (even through an agent) and use this to advise with fellow partners.
what is a Limited Liability partnership (according to statute)
s.1 LLPA 2000: body corporate, with sep. leg. pers. Which is formed by being incorporated under LLPA
formed by registration with registrar of companies s 2&3
LLP has unlimited…
capacity to do business. no ultra vires issue
for LLP do we say members or partners?
we say members.
Statute saying LLP has limited liability
LLPA S1(4)
LLP retains unlimited liability for? (plus statute)
member committing a tort s6(4).
Majority of law relating to LLPs is PA or CA? (plus llp statute). what does this suggest
CA s1(5)
suggest that llp is modified form of private company and not partnership.
definition LLP (plus statute)
s2(1)(a) 2 or more persons associated for carrying in a lawful business with a view of profit.
LLP what 2 ways can people become members (plus statute)
s4
- founding memebers
- later memebers by agreement with existing members.
Unlike Partnership and LP, how come LLP doesn’t dissolve old partnership everytime a new member joins? or leaves
separate legal personality
How do you cease to be a memeber of LLP + stat
s.4(3). giving reasonable notice to other members
are members employers or empolyees? + case
Clyde&co LLP:
they are employees so employment law still applies
agency relations in LLP + state
s5(1)
2 sets:
one owed to company (s6 LLPA: one member can bind LLP to contract)
one to other members
what LLPA stat says its up to members if they want an agreement
s5(2)
what happens in LLP with no explicit agreement
regulation 7 of LLP regulations will provide default provisions
s6 LLPA(LLP agency) LLP will not be bound by memebers if…
- member has no authority to bind
- 3rd party knows he has authority to bind or doesn’t know/believe him to be a member
How is LLP taxed? + statute
taxed as Partnership, NOT company s.10
- all members taxed under personal income tax
insolvency for LLP + llpa stat and Insolvency act stat
- LLPs treated as companies for this
- LLPA s14
- IA s74 allows enforcement of agreements between members or between a member and llp that a member should contribute to assets upon winding up for paying off its debts and expenses
- Important when an LLP is vicariously liable for a members tort
2 options for Partnership law reform? + stat
Law commission consultation 2000
- voluntary continuing legal personality dependent on registration
- Compulsory separate legal personality not dependent on registration with optional continuing legal personality
with intro of SLP, agency will change: agents of firm and not each other.
partnership law reform(duration of partnership)
partnership shouldn’t be dissolved when partners join or leave
- suggestion: distinction between dissolution of partnership when one leaves vs regarding all partners
- suggestion: alter default rules so certain situations (like death) won’t dissolve the partnership but have a different treatment
- suggestion: we should have general provision that whole partnership ends after time/event as provided in partnership agreement
How is dissolution of a firm done
same as companies even in ordinary partnership. Having a liquidator do this.
LPA 1907 suggested reform
Joint consultation paper 2001: suggestion to repeal LPA as it isn’t used as much as PA or LLPA.
- However, it had been used by fund management industry (PFLP: private fund limited partnership).
questions for LPA 1907 reform
- should law allow corporate bodies to be limited general partners?
- should def. of general partner change so same person can be limited and Gen partner?
- should there be more legislative guidance for limited partners as to what can be done other than management
- should act be revised, giving clarity on options to dissolve LP
PFLP SALIENT POINTS
- must be collective investment scheme (fund management
- PFLP allows firms to enjoy certain exemptions
- limited partners in pflp can do more without it being regarded as management LPA s6A
- limited partners need not contribute capital to fimr LPA S4 (2B) (a)
- this is important as it was difficult for partners to withdraw capital
- so limited partners commitment was split into small capital contributions and large loan comitments (debt)
