WS1: Types of business Flashcards
What are the four business models?
Sole Trader
Partnership
Limited Partnership
Limited Liability Partnership
What are the key features of a sole trader business?
No set-up costs
No CH filings
Unlimited personal liability
Contracts made between ST and 3rd party
Total privacy of accounts
Key features of a partnership?
Can be formed without any intention - two individuals carrying out business with a view to profit
Unlimited personal liability
Governed by PA 1890
Total privacy and no CH filings
What are the Section 2 PA rules for determining a partnership?
Whether profits and losses were shared - prima facie evidence but not conclusive
Joint property holdings
Loan from one partner to another - alone, does not automatically create a partnership
Agreement to share losses alongside profits - partnership more likely
Is the person being ‘held out’ as a partner?
No one factor alone does it - all need to be considered together
What are the default provisions of the PA, in the absence of a partnership agreement?
Equal profit and loss sharing, even if capital has been provided unequally
No entitlement to salary
Decisions done by majority UNLESS change to nature of partnership business, then unanimity
Partner cannot be expelled by majority unless this has previously been expressly agreed
Mutual rights and obligations can be varied at any time by the unanimous consent of all partners
What are the key characteristics of limited partnerships?
Two different types of partners:
Limited partners [sleeping partners], who cannot be involved in the management of the business but have limited liability
General partners who manage business and have unlimited liability
Governed by Limited Partnership Act 1907
Must register at CH, but no need for accounts
Most often investment vehicles
Key characteristics of LLPs?
Separate legal personality: own property / enter contracts itself
Tax purposes - partnership
Two or more persons can incorporate an LLP [including a company]
All partners have limited liability
Registered at CH and must file accounts
How is the organisational structure of an LLP decided in the absence of a Members’ Agreement?
Regs 7 and 8 of the LLP Regulations 2001 default provisions:
Equal share of capital and profits
LLP must indemnify members for payments made and personal liabilities incurred in ordinary and proper conduct of the business of the LLP
Every member can manage; none entitled to remuneration for managing
No one can become a member or assign their membership without consent of all existing members
Ordinary decision making - majority decision making
Change to nature of the business - consent of all members
No expulsion of a member by majority unless members have expressly provided previously
