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PARTNERSHIPS

PARTNERSHIPS. THE SOLE TRADER. One-person operation Provide their own capital Contract in their own name Personal liability for all the debts of business No distinction between sole trader’s personal and business assets

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PARTNERSHIPS

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  1. PARTNERSHIPS Lecturer: Rowin Gurusami

  2. THE SOLE TRADER One-person operation Provide their own capital Contract in their own name Personal liability for all the debts of business No distinction between sole trader’s personal and business assets No formal organisational structure since no risk of disagreement (unless Joe is schizophrenic) No legal filing requirements Lecturer: Rowin Gurusami

  3. THE PARTNERSHIP Defined as ‘the relation which subsists between persons carrying on a business in common with a view of profit’ – s1 Partnership Act 1890 Not a separate legal person distinct from its members Very common form of business association because of its flexibility and can be a formal or informal arrangement Lecturer: Rowin Gurusami

  4. S1PaRTNERSHIP ACT 1890 The person needs only be a legal person At least two partners Business can include every trade, occupation or profession Must be a form of activity (contrary to simple revenue-producing property) Must consist of a single transaction (joint ventures) Must have a beginning and an end Lecturer: Rowin Gurusami

  5. S1 PaRTNERSHIP ACT 1890 In common means the partners must be associated in the business as joint proprietors (e.g. Share of profit) There must be intention to make profit. In Davies v Newman 2000, there was no partnership as intention was only to gain experience Usually existence of partnership demonstrated by written partnership agreement and adoption of firm name, although it is not essential Lecturer: Rowin Gurusami

  6. FORMATION Can be informal, but may be complex formalities to ensure clarity In law, the agreement is straightforward but there may be problems encountered especially when professionals involved Usually involves detailed partnership agreement to lay out terms and conditions of partnership Lecturer: Rowin Gurusami

  7. PARTNERSHIP AGREEMENT Written one not legally required Advantages: Fills in details the law would not imply (e.g. Name of firm, bank at which account to be maintained, etc) Override terms otherwise implied by Partnership Act 1890 (e.g. Equal profit sharing) Additional clauses can be developed (e.g. Expulsion clause) Lecturer: Rowin Gurusami

  8. AUTHORITY OF PARTNER A partner is the agent of the partnership and their co-partners (s5 Partnership Act 1890 ) Some of their acts bind other partners, whether they had, or because they appeared to have, authority The same principles of agency governs the authority of the partner Lecturer: Rowin Gurusami

  9. AUTHORITY OF PARTNER Partner acting within actual or apparent authority: Firm and co-partners liable. Third party knows partner had no actual authority: Firm and co-partners not liable. Partner has no actual authority and third party does not know or believe him to be a partner: Firm and co-partners not liable. Person representing himself as partner: Personally liable as if he is a partner Tort committed during course of partnership’s business: Partners jointly and severally liable to person who suffers loss. New partners: Only liable for debts incurred after they became partners Retiring partners: Liable for outstanding debts incurred when they were partners. They can also be liable for future debts towards third parties if no proper notice of retirement provided to those third parties. Lecturer: Rowin Gurusami

  10. SUPERVISION No formal statutory supervision or regulation Accounts need not be in prescribed form or to be audited Public has no means or legal right of inspection Have to make return of profits for income tax and to register for VAT Have to state surnames of partners unless firm’s name already include them Lecturer: Rowin Gurusami

  11. TERMINATION Partnership Act 1890 provides: Passing of time Termination of venture Death or bankruptcy of one partner Subsequent illegality Notice given by a partner (if partnership of indefinite duration) Order of court granted to a partner (under s35 PA 1890) Agreement between partners Lecturer: Rowin Gurusami

  12. TERMINATION In event of termination, partnership’s assets are realised and proceeds applied in this order: Paying off external debts Repaying partners any loans or advances Repaying partner’s capital contribution Anything left is distributed in profit sharing ratio Lecturer: Rowin Gurusami

  13. LIABILITY IN UNLIMITED LIABILITY PARTNERSHIP Partners are jointly liable for all partnership debts resulting from contracts that partners have made binding the firm New partners admitted in existing firm only liable for debts incurred after they became partner (unless they agree otherwise) Retiring partners still liable for outstanding debts incurred while they were partners (unless creditor agreed to release them from liability). Can be liable for future debts if no proper notice given to creditor Lecturer: Rowin Gurusami

  14. LIMITED PARTNERSHIPs Created under Limited Partnership Act 1907 One partner has full, unlimited liability while the others have limited liability (to extent of invested capital) Conditions: Limited partners may not withdraw their capital. Limited partners may not take part in management of partnership. Limited partners cannot bind partnership in contract with third party without losing benefit of limited liability. Partnership must be registered with Companies House. Lecturer: Rowin Gurusami

  15. LIMITED LIABILITY PARTNERSHIPs Created by the Limited Liability Partnerships Act 2000 Combines the features of traditional partnership with limited liability and creation of legal personality A LLP is a corporate body with separate legal personality from its members and will be liable for its own debts Lecturer: Rowin Gurusami

  16. LLP FORMATION Must be incorporated to be recognised Incorporation document and statement of compliance to be sent to Registrar of Companies Name of LLP Location of registered office Address of registered office Name and address of all members of LLP Which of members are designated members Lecturer: Rowin Gurusami

  17. LLP INTERNAL REGULATION More flexible than companies (e.g. No board of directors or statutory rules on meetings) Rights and duties of partners set out in partnership agreement or in the PA 1890 by default Must have 2 designated members who take responsibility of publicity requirements of LLP: File certain notices with Registrar Sign and file accounts Appoint auditors if appropriate Lecturer: Rowin Gurusami

  18. DISSOLUTION OF LLP Does not dissolve on a member leaving LLP needs to be wound up when time comes for it to be dissolved Done under same provisions to those of company winding up Lecturer: Rowin Gurusami

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