Partnerships Flashcards
Written Partnership Agreements
Oral agreement is possible, but if written it ensures all involved are clear about RIGHT, LIABILITIES, RESPONSIBILITIES
Partnership Agreement allows the partners to structure their relationship in the way that best suits their business and personal circumstances, regulate arrangements for partners who leave the partnership.
Absence of an express partnership agreement
The PA 1890 in the absence of an Agreement:
- EQUAL SHARE of trading and capital profits & losses
- NO INTEREST payable to partners on their capital
- SIGNIFICANT DECISION made with the consent of all partners
- PARTNER guilt of MISCONDUCT can’t be expelled by the other partners acting unanimously
- PARTNERSHIP NOTICE can be given to dissolve by one partner
- BANKRUPTCY/DEATH of one partner automatically dissolves a partnership
- If Partner COMPETES with the firm without the consent of the other partners, they must account to the firm for all the profits (although they can’t be stopped from competing)
- MANAGEMENT - every partner, young/old/inexperienced has right to take part, if denied, they can ask the court to dissolve the firm on ‘just and equitable’ grounds
How to leave a Partnership and obtain repayment of capital
- Partner must give notice of dissolution to the other partners
- The amount due to Partner is that indicated by the firm’s financial statements at the relevant date, and Partner will have to bear his share of any capital losses. He might not recover all the capital he has invested
- The amount due then becomes a debt due to him by the partnership
- If necessary Partner can recover the amount through the courts
An LLP is
a Limited Liability Partnership
- legal entity
- combines limited liability with tax transparency
- LLP has no share capital therefore does not distribute profits via Dividends
- Its members are entitled to a share in profits as agreed among them - done through a Written Agreement
- like a Ltd Co, has ability to secure borrowings by means of a floating charge over the whole of its assets (general partnerships can’t)
- LLP is liable for its business debts
- obliged to file Financial Stmts annually thr Cos.House (ava. for public to inspection)
- provisions of Partnership Act 1890 do not apply (nor Ltd Partns Act 1907)
- LLPs are governed by agreement between its members
- LLPs are taxed as if a general Partnership, subject to some exceptions; ie where the LLP does not carry on its trade or business with a view to profit - it is taxed as though a Company inc. Gains
Every LLP must have at least two ‘designated members’ who are responsible for:
- appointing an auditor (where one is needed)
- signing the financial statements on behalf of the members
- submitting the financial statements to Companies House
- notifying Co.Hse of any membership changes or change of registered office address or name of the LLP
- preparing, signing and delivering the annual confirmation statement to CoHse
- acting on behalf of the LLP if it is wound up and dissolved
LLP members whom HMRC considers not to be genuine risk-taking partners must be classified a ‘salaried members’ and paid under PAYE (NICs) and Ben in Kind. This applies where the following 3 conditions are met: (unless member can DEMONSTRATE that at least 1 does not apply)
- the member’s regular payments have characteristics of a ‘disguised salary’ (fixed / don’t vary in line with profits)
- the member has no significant influence over the affairs of the whole LLP
- the member’s capital stake in the business is less than 25% of their expected reward package
