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Patnerships and LLPs Flashcards

1
Q

What governs traditional partnerships in the UK?

A

Partnership Act 1890 (PA 1890)

The PA 1890 provides the legal framework for partnerships, outlining their formation, operation, and liabilities.

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2
Q

How is a traditional partnership defined?

A

A relationship between persons carrying on a business in common with a view to making a profit (s 1(1) PA 1890)

Partners may not always be aware that a partnership has formed.

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3
Q

How many persons are required to form a partnership?

A

At least two persons

A company can also be a partner since the PA 1890 does not distinguish between actual and legal persons.

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4
Q

What is the liability status of partners in a traditional partnership?

A

Partners are personally liable for debts and obligations of the firm

A partnership has no separate legal personality from its partners.

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5
Q

What is the duty of partners to one another?

A

An overriding duty of good faith

This duty includes honest and full disclosure, unauthorized personal profit, and conflict of duty and interest as outlined in the PA 1890.

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6
Q

What type of liability do partners have in contracts?

A

Joint liability for all debts and obligations incurred while they are partners (s 9 PA 1890)

This means all partners are collectively responsible for the firm’s debts.

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7
Q

What is the principle of ‘holding out’ in partnerships?

A

A non-partner may be personally liable for partnership debts if they have held themselves out as a partner (s 14 PA 1890)

This includes making representations to third parties about being a partner.

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8
Q

What is the taxation status of partnerships?

A

Tax transparency; each partner pays tax on their share of income or gains

Partnerships do not pay tax as a separate entity but must file a single tax return.

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9
Q

What happens if a new partner joins an existing partnership?

A

They will not automatically be liable for debts incurred before joining (s 17(1) PA 1890)

However, they are liable for debts incurred while they are a partner.

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10
Q

Fill in the blank: A partnership can be formed without any _______.

A

legal formality

This makes it easy to establish a partnership.

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11
Q

True or False: A partnership is a separate legal entity from its partners.

A

False

Partnerships are not separate legal entities; they are considered as the partners collectively.

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12
Q

What section of PA 1890 applies when determining if a firm is bound by a contract made by a partner?

A

Section 5 PA 1890

This section provides rules for agency when the agent is a partner.

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13
Q

What does the term ‘apparent authority’ mean in the context of partnerships?

A

Authority that arises when a principal allows a third party to believe an agent has the authority to bind the firm

This can occur even if the agent does not have actual authority.

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14
Q

What are the two types of liabilities partners face?

A
  • Contractual liability
  • Tortious liability

Partners are jointly and severally liable for both types of liabilities.

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15
Q

What does the term ‘fiduciary relationship’ imply in partnerships?

A

Partners owe a duty of good faith to one another

Similar to the duty owed by a trustee to a beneficiary.

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16
Q

What is the primary reason clients may want to avoid forming a partnership?

A

Concerns about being subject to unlimited liability

The PA 1890’s provisions may not suit modern business practices.

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17
Q

What is required for a former partner to avoid liability for new debts after leaving a partnership?

A

Notification of their departure must be given to third parties

This can be done through actual or constructive notice.

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18
Q

What does the Partnership Act 1890 provide?

A

The framework for regulating traditional partnerships and fallback provisions in absence of a partnership agreement.

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19
Q

When does a partnership come into existence according to PA 1890?

A

When the conditions set out in s 1(1) PA 1890 are satisfied.

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20
Q

What sections of PA 1890 determine the relationship between partners and third parties?

A

Sections 5 – 18.

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21
Q

Can partners vary mutual rights and obligations under PA 1890?

A

Yes, by unanimous consent according to s 19 PA 1890.

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22
Q

What is a partnership agreement?

A

A formal written agreement that governs how the partnership will be run.

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23
Q

List some common provisions included in a partnership agreement.

A
  • Commencement and duration
  • Partnership name and place of business
  • Partnership property
  • Capital, profits and losses
  • Drawings / Salary
  • Accounts
  • Dissolution of the partnership
  • Duties, powers and restrictions on partners
  • Partnership decision making
  • Incoming partners
  • Retirement/expulsion of existing partners
  • Non compete / other restrictions
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24
Q

What happens if partners continue in business after a fixed term without a new agreement?

A

They are presumed to be partners on the same terms as before (s 27 PA 1890).

25
What does section 20 PA 1890 state about partnership property?
All property brought into the partnership for the purposes of the business is partnership property.
26
How are profits and losses shared among partners under PA 1890?
Equally, unless there is an express or implied agreement stating otherwise.
27
What is the default position regarding remuneration for partners?
Without an agreement, a partner is not entitled to a salary (s 24(6) PA 1890).
28
How is decision-making handled in a partnership according to PA 1890?
Decisions are made by majority, except for certain matters requiring unanimity.
29
What is required for a new partner to join an existing partnership?
Unanimous consent of all existing partners (s 24(7) PA 1890).
30
Can a partner be expelled by majority vote under PA 1890?
No, unless there is prior agreement that allows majority expulsion.
31
What occurs when a partner leaves a partnership without an agreement?
The partnership is dissolved (s 26 PA 1890).
32
What is the implication of a partner leaving a two-partner partnership?
The remaining partner becomes a sole trader.
33
What is the purpose of non-compete clauses in partnership agreements?
To prevent current partners from competing with the firm.
34
List some ways a partnership can be dissolved under PA 1890.
* Expiry of a fixed term (s 32(a)) * Completion of a specific venture (s 32(b)) * Death or bankruptcy of any partner (s 33) * Notice from any partner (ss 26 and 32(c)) * Unlawfulness of partnership business (s 34) * Court dissolution as a last resort (s 35)
35
What is the order of asset distribution upon dissolution of a partnership?
Partners are paid back their original capital first (s 44(b)(3) PA 1890).
36
What is an Asset Surplus Ratio (ASR)?
A provision in a partnership agreement detailing the proportion of surplus assets to be shared after dissolution.
37
What is an LLP?
A hybrid vehicle with elements of both a company and a partnership, offering limited liability to its members.
38
What legislation governs Limited Liability Partnerships (LLPs)?
The Limited Liability Partnerships Act 2000 (LLPA) and its supplementary regulations.
39
What is a key advantage of an LLP compared to a traditional partnership?
Limited liability for its members.
40
What types of businesses commonly use LLPs?
Professional partnerships like solicitors, surveyors, accountants, and joint ventures.
41
What is the significance of tax transparency for LLPs?
It allows high participation in management by members while providing limited liability.
42
What primarily governs LLPs?
A company law framework ## Footnote LLPs are primarily governed by the company law framework rather than partnership law.
43
Which acts apply to LLPs in modified form?
Insolvency Act 1986 and Company Directors Disqualification Act 1986 ## Footnote These acts have important consequences for LLPs, including provisions on fraudulent and wrongful trading.
44
What is required for the formation of an LLP according to Section 2(1)(a) LLPA?
Two or more persons associated for carrying on a lawful business with a view to profit ## Footnote A 'person' can be a company or an individual.
45
What is the purpose of Form LL IN01?
To register an LLP at Companies House ## Footnote The form includes details like the name of the LLP and its registered office.
46
What must the registered address of an LLP be as of March 2024?
An appropriate registered address ## Footnote This requirement aligns with the same requirement for companies.
47
What document is issued as conclusive evidence of an LLP's incorporation?
Certificate of incorporation ## Footnote This certificate confirms compliance with all legal requirements.
48
What information must LLPs continue to file with Companies House?
* Change of name * Change of registered office and email * Changes in membership * Creation of a charge * Annual confirmation statement * Accounts ## Footnote These obligations ensure transparency and compliance.
49
Who can be a member of an LLP?
Persons, including corporate bodies ## Footnote At least two members are required, and there is no maximum limit.
50
What are the obligations of designated members in an LLP?
* Signing the accounts * Making filings at Companies House * Acting on behalf of the LLP if it is wound up ## Footnote Designated members play a crucial role in compliance and management.
51
What is the nature of the LLP Agreement?
A private document outlining the formal procedures and arrangements among members ## Footnote Unlike companies, LLPs do not have Memorandum or Articles of Association.
52
What happens if there is no Members' Agreement in place in an LLP?
The 2001 Regulations contain eleven default provisions ## Footnote These provisions govern the operation of the LLP in the absence of a formal agreement.
53
What is one key difference in taxation between an LLP and a company?
An LLP is treated as a partnership for tax purposes ## Footnote This means members are taxed individually rather than the LLP itself being subject to corporation tax.
54
What are some corporate characteristics of LLPs?
* Separate legal personality * Limited liability for members * Filings at Companies House * Capability to create a floating charge ## Footnote LLPs combine features of both companies and partnerships.
55
What are some partnership characteristics of LLPs?
* No share capital * No distinction between members and management * Tax transparency * Members can agree on profit sharing and management duties ## Footnote LLPs offer flexibility similar to traditional partnerships.
56
What is the clawback rule applicable to LLPs?
Money taken out by members up to two years before winding up can be clawed back ## Footnote This rule disadvantages LLP members compared to those of a company.
57
What should clients consider when using an LLP?
Drafting a Members' Agreement ## Footnote A Members' Agreement can help outline the relationship and operations of the LLP.
58
True or False: An LLP must be incorporated and registered at Companies House.
True ## Footnote This requirement is similar to that of companies.
59
Fill in the blank: LLPs have the advantage of being a ______.
separate legal entity ## Footnote This characteristic allows for limited liability and tax transparency.

Business law and practice (5 decks)

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