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Law > Sole Traders and Partnerships > Flashcards

Sole Traders and Partnerships Flashcards

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1
Q

Define sole trader

A

Where a single person owns and runs the business. They contribute the capital to set up the business and all the profits and losses belong to them.

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2
Q

What is the legal status of a sole trader?

A

There is no distinction between the owner of the business and the business itself.

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3
Q

What are the advantages of trading as a sole trader?

A
  1. Profits belong to the owner
  2. No formal procedures to set up
  3. Independence
  4. Self-accountability
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4
Q

What are the disadvantages of trading as a sole trader?

A
  1. Risk
  2. Limited options for capital injection
  3. High dependence on the owner
  4. If the trader does not engage employees the success of the business is dependent on their own skills
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5
Q

What are the types of partnerships?

A
  1. Ordinary
  2. Limited
  3. Limited liability
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6
Q

Define partnership

A

The relation that subsists between persons carrying on a business in common with a view of profit

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7
Q

What is the legal status of a partnership?

A

A partnership is a relationship between persons; not a separate legal entity

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8
Q

What happens if one person dies if a partnership is made up of only two people?

A

The remaining person becomes a sole trader

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9
Q

How does HMRC decide the date that a partnership begins?

A

According to the date the parties open a bank account

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10
Q

Can the Partnership Act 1890 be overruled?

A

Yes; by any express agreement already made between the partners.

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11
Q

According to the Partnership Act 1890, how are profits and losses shared?

A

Equally

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12
Q

According to the Partnership Act 1890, who is entitled to take part in the management of the business?

A

Every partner and ordinary management decisions can be taken by a majority of members

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13
Q

According to the Partnership Act 1890, are partners entitled to remuneration for carrying out partnership business?

A

No

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14
Q

According to the Partnership Act 1890, under what condition can a partnership agreement be varied?

A

With the consent of all partners and any change in the nature of the business must be a unanimous decision.

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15
Q

According to the Partnership Act 1890, how is interest charged on capital?

A
  1. No interest on the original capital

2. 5% can be paid on further capital injections

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16
Q

According to the Partnership Act 1890, how many partners must agree with the expulsion of a partner?

A

A majority

17
Q

According to the Partnership Act 1890, where should partnership records and accounts be kept?

A

At the place of business and available for inspection by all partners

18
Q

What is the fiduciary nature of a partnership?

A
  1. The partners OWE FIDUCIARY DUTIES to the partnership
  2. Every partner is an agent of the partnership so must carry out their work in GOOD FAITH
  3. The fiduciary nature of the relationship PROHIBITS PARTNERS FROM KEEPING PROFITS made in the partnership without the consent of the other partners
  4. It requires partners to AVOID CONFLICTS OF INTEREST
19
Q

According to the Partnership Act 1890, how does a partnership come to an end?

A
  1. DEATH or BANKRUPTCY of a partner
  2. EXPIRY OF A FIXED TERM
  3. Completion of a SINGLE JOINT VENTURE if stated this will happen in the agreement
  4. Continuation of the partnership would be ILLEGAL
  5. A partner GIVES NOTICE for the firm to be DISSOLVED
  6. COURT ORDER
20
Q

According to the Partnership Act 1890, in which situations can the court bring a partnership to an end?

A
  1. Partner has mental disorder or permanent incapacity
  2. Partner engages in prejudicial activity
  3. Partner persistently breaches the partnership agreement
  4. Business can only be carried on at a loss
  5. It is just and equitable to do so
21
Q

According to the Partnership Act 1890, what is the implied authority of partners?

A

Every partner is an agent of the firm and of the other partners

22
Q

Are the other partners always bound by the actions of one partner who is acting within the usual business of the partnership?

A

Usually, unless:

  1. He has no actual authority AND
  2. The third party either knows he has no actual authority OR does not believe him to be a partner
23
Q

Are new partners liable for debts incurred before they became a partner?

A

No

24
Q

Are retiring partners liable for debts incurred while they were partners?

A

Yes

25
Q

What is a novation?

A

A novation occurs where a creditor agrees the liability on the debt will be that of the continuing or incoming partner

26
Q

Define limited liability partnership

A

An incorporated partnership that has a legal personality separate from its members

27
Q

How is a limited liability partnership formed?

A

An incorporation document must be submitted to the Registrar of companies

28
Q

What must a limited liability partnership’s incorporation document include?

A
  1. Name of the LLP
  2. Location of its registered office
  3. The address of its registered office
  4. The names and addresses of all members
  5. A statement specifying which of the members are to be designated members or stating that every member is a designated member
29
Q

What is the maximum number of members of an LLP?

A

There is no maximum

30
Q

How can a partner cease to be a member?

A

By giving reasonable notice. Changes must be notified to the Registrar within 14 days

31
Q

How can an LLP be terminated

A

By unanimous agreement or otherwise in accordance with any agreement

32
Q

Where the LLP becomes insolvent, what are the members’ options?

A
  1. Propose a voluntary arrangement
  2. Apply to put the LLP into administration
  3. Resolve to go into compulsory or voluntary liquidation
33
Q

Can the partnership raise finance by creating a floating charge over its assets or undertaking?

A

No

34
Q

Can a partner assign their interest in the partnership to another person?

A

Yes

35
Q

Is there a requirement for an LLP to have a formal partnership agreement?

A

No

36
Q

Who is a member of an LLP an agent of?

A

Only the LLP

Law (6 decks)

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