Sole Traders and Partnerships Flashcards
True or false, a partnership must be formed with a view of a profit?
True
True or false, a partnership must have a written partnership agreement?
False
True or false, a partnership is subject to the Partnership Act 1890?
True
True or false, each partner is an agent of the firm and the other partners?
True
What are partners not joint and severally liable for?
Income tax, each individual partner is solely responsible for their own income tax on their share of the profits
What are the partners in an LLP called who have responsibility for the firm’s compliance requirements?
Designated members
True or false, an LLP dissolves when a partner leaves?
False, an LLP is only dissolved when they cease to trade
True or false, partners are not liable for partnership debts incurred by another member of the partnership, only those which they incur themselves?
False, partners have joint and several liability for the debts of the business
Why is there a provision for which the sale by a partner of their interest in the partnership is treated as a sale of land for the purposes of SDLT?
A partner’s interest in a partnership is a chose in action which is personality - an intangible asset that is not land.
Without this provision, the sale for the interest, not being land, would not otherwise be liable to SDLT and Parliament did not intend for this to be the case
Why is it unnecessary for a sole trader to provide a lender with a personal guarantee or their business debts?
Because the sole trader has unlimited liability and is therefore automatically liable for all of the business’s debts
What are the legal and compliance duties for the designated member of an LLP?
Filing changes in members with Companies House
Signing and filing accounts
Appointing auditors
Are partners who retire liable for outstanding debts incurred while they were partners?
Yes, unless the creditor has agreed to release them from liability. They are also liable for the debts incurred after their retirement if the creditor knew them to be partners before retirement and the creditor had not had notice of their retirement
When a partnership is dissolved, in what order are assets realised?
External debts
Partners’ advance made over and above their capital contribution
Partners’ capital contributions
Any excess according to the profit sharing ratio
If a partnership agreement is in place, but makes no mention of anyone ceasing to be a partner, and one partner dies, what happens?
The partnership is dissolved
True or false, if a partner has left, they will be liable for a claim against the partnership for a tort committed during the course of business the week after the partner left?
True
If customers are informed that one partner does not have the authority to enter into a contract, and they proceed to enter into a contract with that partner, what is the impact of this?
The contract is not binding on the remaining partners as the customer knew the partner was acting without authority
The partner is not considered to have apparent authority
The partner acted without express authority
True or false, in a general partnership, the partners are jointly and severally liable for breaches of contract?
True
What must a sole trader consider when ceasing to trade?
Rent until lease reassigned on premises
Redundancy payments
VAT deregistration
What does importing involve?
Declaring all commercial goods imported to HMRC, along with payment of applicable customs duties and import VAT
Larry took out a lease in 2002 in respect of business premises. He assigned the lease to Lesley in 2012, who in turn assigned it to Lisa in 2022. There is no authorised guarantee agreement in place.
If Lisa defaults on payment, who will be liable?
Lisa only
Ann Fang has recently qualified as a dentist. She is about to start in practice as a sole trader, and needs a loan to buy equipment. Which of the following would it be useful for her to offer her bank?
1. A charge over her home
2. A personal guarantee of any business debts, written and signed by her in front of a witness
A charge over her home
Mr Caxton is a sole trader and runs a print shop. His annual profits are over £500,000. He has one employee, Wynkyn, whom he pays £25,000 pa. What will Mr Caxton need to pay?
Class 1, Class 2 and VAT
A sole trader making substantial profits will pay which two types of national insurance contribution?
Class 2 and 4
