Types of Business Organisations Flashcards
What are the different types of business organisation?
Sole Trader
General partnership - owned by 2 or more individuals who are liable for business debts.
Limited partnership - Mix of liability, rarely seen.
Limited Liability Partnership - Hybrid between company and partnership. All partners have limited liability.
Company - Separate legal entity from shareholders & Directors.
How is a partnership defined?
A relation between two or more individuals carrying out a business in common to make a profit.
Must be a joint business activity
begins as soon as the partners start their business activity.
What are the different types of partners?
General - Actively involved in day to day business.
Sleeping - No active part in running the business, still has liability.
Limited in limited partnership - Contributes a specific amount of capital, cannot take part in management.
Salaried - Will receive fixed income, not a real partner unless receiving a share of the profit.
What authority do partners have?
Each partner acts as an agent for the business:
Express/Actual authority - will be as set out in the partnership agreement
Implied/Apparent authority - will need to consider the type of business to determine if acting within this authority.
What Liability does the partnership have?
The partnership is liable for contracts made within express/implied authority.
Note - The partnership is not a legal entity so any liability will be against one or all partners.
Where does liability start/end for partners?
New Partners - Not liable for debts incurred before they became a partner.
Retiring partners - Remain liable for debts until notice of retirement is given.
Change of partners - Old partners remain liable unless 3rd party is notified of the change.
Novation - creditor agree’s that liability on a debt will be with continuing or incoming partner.
When will the dissolution of a partnership occur automatically?
Death or bankruptcy of a partner.
Expiry of a fixed term
Completion of a joint venture, if stated in the agreement.
Continuation of the partnership would be illegal
Partner gives notice for the firm to be dissolved.
Order of the court.
For what reasons can a Court bring a partnership to an end?
Partner has Mental disorder or permanent incapacity
Partner engages in activity prejudicial to the business.
Partner persistently breeches partnership agreement.
Business could only be carried on at a loss.
It is just and equitable to do so.
What about distribution of assets when a partnership dissolves?
Assets will be used to pay of the partnership debts in the following order:
1. Debts to outsiders
2. Any advance from partners beyond capital contributions
Capital contributions from Partners.
Reside will then be divided on the same basis as profits are shared.
Shortfall will be covered by held back profits or partners capital, if still insufficient partners will individually contribute in the same proportion as profit share.
