Types of Trade Flashcards
Who is a sole trader?
A person who runs their own business - provides capital and earns profits/suffers losses
Not a separate legal entity to owner
What are the advantages and disadvantages of a sole trader?
No formal set up, independence, privacy, personal supervision and profits accrue
Unlimited liability, reliance on individual, succession issues, skill, struggles with funding,expansion,diversification
What is an ordinary partnership?
Relationship between persons carrying on a business in common with a view of profit
Not a separate legal entity
What is a partnership deed and is it actually needed?
Sets out terms of agreement between partners
Not required
What fiduciary duties do partners have?
Act in good faith
Not exercise legal right for improper motive
Not keep profits without consent
Avoid conflicts of interest without full disclosure
Breaches make partner liable
What are the provisions of the Partnership Act?
Equally sharing profit and loss
Share capital deficiency in proportions to which they provided capital
Take part in management, decisions made by majority
Unanimous decision for changes in business
Unanimous consent for new partners
Agreement varied with consent of all partners
Indemnify partners against liabilities
No entitlement of remuneration
No interest paid on capital except by agreement
Records kept in main place and open for inspection
Expulsion of partners by majority votes for good reason
Authority continues so far after dissolution
What is partner liability and rules?
Jointly and severally liable for acts of fellow partners
1) Each partner agent unless he has no authority and person dealing with knows he has no authority or does not know he is a partner
2) Partner pledges credit for a purpose that has no connection to the business - firm not bound unless actual authority to do so
What liabilities are partners liable/not liable for?
Not liable for debts incurred before he joined
Liable for debts whilst a partner and after he leaves (if creditor still thinks he is partner)
What should be done when a partner leaves/retires?
Give notice to all creditors
Remove name from letterhead
When is a partnership dissolved?
Death/bankruptcy of a partner - usually overridden
Expiry of a fixed term partnership
Completion/termination of single joint venture
Subsequent illegality
Notice given by a partner
Order of the court
When creditors go to court to get a wind up if partnership defaulted on debts
What is a Limited Liability Partnership?
A hybrid between a company and a partnership that is a separate legal entity to the owners
How is an LLP formed?
Incorporation document sent to registrar of companies including:
name, location, address, names and addresses of all members, manes of 2 designated members, registration fee
Do LLPs need a partnership agreement?
No - in absence of agreement follows Partnership Act on profit share, remuneration, inspection of books and expulsion
What are the regulations of an LLP?
Keep and retain accounting records, publish annual accounts
Audit exemption for small/medium companies - no director’s report
Maintain register of charges and register those charges
Notify registrar on change of membership, designated members, registered office within 14 days
Name on correspondence/ outside the building
Confirmation statement
Can apply to court for unfair prejudice
Member can be found guilty of fraudulent/wrongful trading - disqualified
What authority does an LLP have?
Each member is an agent with power to bind
Not bound where member has no authority/3rd party aware he has no authority or thinks he is not a member
