Partnerships Flashcards
What are incorporated businesses?
Corporate bodies
What are the advantages of a sole trader?
- control
- profit retention
- private data
- specialist
- personal
- no legal requirements
What are the disadvantages of a sole trader?
- liability
- finance / expansion
- economies of scale
- decision making
Arguments for a sole trader admitting a partner?
- access to new funding
- access to expertise
- access to new markets
- less responsibility (time, liability, decision making)
Arguments against a sole trader not admitting a partner?
- increased formality and disclosure
- profit share
What is the definition of a partnership?
“Partnership is the relation which subsists between persons carrying on a business in common with a view of profit.”
Types of partnerships
What is a general partnership? (Partnership Act 1890)
- general partners
- all of the partners share equal rights & responsibilities in the management of the business
- each individual partner assumes full responsibility for all of the business’s debts and obligations
Types of partnerships
What is a Limited Partnership (Limited Partnership Act 1907)?
general partners (at least 1)
- full personal liability for the business’s debts and obligations
- has / have right to manage and control the business
limited partners
- his / her liability is limited to his / her investment in the business
- does not participate in the day-to-day management of the business
Types of Partnerships
What is a Limited Liability Partnership (Limited Liability Partnership Act 2000)?
- all partners have limited liability
- combines characteristics of partnerships and corporations
What are the main features of a partnership?
- Contractual relationship (relationship of utmost good faith)
- Separate Legal Persona (in Scotland)
- At least two individuals, no maximum
- Main purpose is to make profit
- Members of partnership contribute: money, time, skills
What is a separate Legal Persona?
- can enter into contracts with third parties in its own right
- can raise a legal action in its own name
- it can be sued by a third party in the event of a legal dispute
- it can own property
- it can commit delicts
-BUT not elsewhere in the UK (A partnership is not a persona in law; a partnership is an aggregate of its members.)
Who are partners in a partnership an agents of?
-the business and each other
The partner bind the firm into a contract with a third party.
Creation of a Partnership
- members do not have to comply with any formal legal requirements
- the partnership does not have to be registered with the Registrar of Companies
Creation of a partnership
Types of contract
- expressed (written or verbal) or
- implied by the actions / behaviour of the parties / members
- by holding out _ Hosie v Waddell (1866)
Creation of a Partnership
What happens if there is no written agreement?
-the court can use the rules contained in the Partnership Act 1890 to resolve any problem, dispute
BUT … Partnership Act 1890 only provides guidelines → the partners are free to ignore it & the courts have to respect this decision
What details can be included in Partnership agreements?
- nature of the business
- the name of the business
- provisions for disputes between partners
- capital to be contributed by each partner
- interest* to be paid on capital before the profits are shared
- salaries to be paid to partners
- profit sharing ratios
- interest* to be charged on partners’ drawings
- limits on drawings
- admission of new partners
- retirement of existing partners
*if any
Naming a partnership
-may use the words “and Company” / “and Co”
-may trade under the names of the individual partners
OR
may trade under a collective name
The names and addresses of the partners must be displayed
on the business premises AND
on the firm’s letters and business documents
-is not required to register the name but subject to disclosure requirements of S.1200-S.1208 of the Companies Act 2006 if the partnership uses a name other than the surnames of each partner
What are partnerships not aloud to be named as?
prohibited to use “limited” / “Ltd”
Does a partnership exist?
How do you know if someone is a partner of a business?
IF an individual is entitled to a share of the profits of the business, this may be used in evidence to prove that he is a partner in a firm
Does a Partnership exist?
A person is not regarded as a partner when?
1) owning property jointly or in common does not itself create a partnership, even where profits from its use are shared
2) sharing of gross returns does not itself create a partnership
3) parties may share profits without being partners
-a loan provider where interest varies with profit
employees
-a widow or dependent of a deceased partner
-a seller of goodwill
Fiduciary duties (relationship of trust) (S.28-30)
The duty to disclose (S.28)
- keep proper accounts
- inform fellow partners about matters which may affect the firm
Fiduciary duties (relationship of trust) (S.28-30)
The duty to account (S.29)
inform fellow partners of any profit made or benefit received as a result of his position as a partner or as result of using the firm’s property / assets, name, contacts, business connections
Fiduciary duties (relationship of trust) (S.28-30)
The duty not to compete (S.30)
profit made by competing business (without permission by his fellow partners) have to be handed over to the firm
Rights & Duties (S.24)
Unless the partners have a different agreement among themselves what must all partners do?
- can expect to share equally in the profits that a partnership makes
- are expected to contribute equally towards any losses that the firm may suffer
- are expected to share equally the partnership funds or capital
- are entitled to receive interest on money loaned to the firm (5%)
- have the right to participate in the running of the partnership
- have the right to be indemnified by the firm for any liabilities incurred or payments made in the course of the firm’s business
- must first agree before any new partner can join the partnership
