PARTNERSHIPS
Sole Trader
A person who alone:
a) has the right to make all decisions affecting the business;
b) owns all the assets of the business;
c) is responsible for paying income tax on all the profits of the business; and
d) has unlimited liability for the debts of the business.
There is no single piece of legislation which governs a business run by a sole trader
Partnership
Two or more persons who, on the basis of a contract (written or not) between them:
a) share the right to take part in making decisions which affect the business or the
business assets (although they may have agreed that one or more of their number
will not be involved in day-to-day matters but only in fundamental decisions);
b) share the ownership of the assets of the business (although they may have agreed
that the firm will use an asset which is owned by one of the partners individually);
c) share the profits of the business (although the partners may have agreed not to
share these equally); and
d) share unlimited liability for the debts of the business (although if one does not pay
then the others must pay his share)
Limited Partnership:
form of unincorporated business is established under the Limited Partnerships Act
1907
there must be at least one general partner who has unlimited liability for all the
debts of the partnership.
LPs must be registered with the Registrar of Companies (who also acts as the Registrar of
LPs) in accordance with s 8 of the LPA 1907 before they can start trading
Partnership Act 1890
1 Definition 2+ people carrying out business with shared view of profit
2 Rules for determining existence of partnership indicia of S1:
o common business activities
o arrangements for sharing profits
o contributed capital and know how
o meet on a regular (quarterly) basis
4 Meaning of firm
5-10 Power to bind the firm
9 Liability of partners jointly liability for debt (S3 CLA severally liable)
10 Liability of the firm for wrongs
14 Liability by ‘holding out’ (holding out to be a partner = liability)
17 Liability of incoming and outgoing partners
(2): retiring does not = no liability
(3): may be discharged from liability by agreement
19 Variation of partnership terms = must have consent
24-25 Implied terms
26 Retirement from partnership at will
28-30 Duty to render accounts and info, to share private profits and not to
, compete
32-35 Dissolution
36 Rights of persons against apparent members of the firm – must give notice
S36(1): entitled to treat old members are members until given notice
S36(2): ad in London Gazette (future members) + circular (present members)
44 Rules for distribution of assets on final settlement of accounts
Limited Liability Partnerships Act 2000
1 Definition – is a body corporate
2 Rules for incorporation
4 Members
5 Relationship of members – governed by agreement/regulations per S15(c)
6 Members = agents (unless no auth and person knows) and notice
requirements
15 Application of co law LLPs (Application of the CA 2006) Regulations 2009
LLP Regulations 2001
Limited Partnerships Act 1907
4 Definition and constitution of ltd partnership
5 Registration of LP required
6 Modifications of general (partnership) law in case of LPs
7 Law of private partnerships to apply where not excluded (ie PA 1890 & CL)
8 Duty (of registrar) to register (on application)
8A Application for registration
8B Name of LP – must end with ‘limited partnership’ or ‘LP’
8C Certificate of registration (= conclusive evidence of existence)
13 Registrar to file statement and issue certificate
16 Inspection of registered statements
Approach to Partnership Question
1. Is there a partnership?
2. Who are the partners? Are they still partners?
3. What type of partnership is it?
(a) Fixed / At will?
(b) GP / LP / LLP?
4. What are the relevant terms?
(a) Express by oral/written agreement – s.19 PA 1890
(b) Inferred from conduct?
(c) Implied by PA 1890, LPA 1907, LLPA 2000
5. Apply to facts
6. Conclude
General Partnership
, - Creation -
s.1 PA 1890 “Partnership 2+ persons carrying on a business in common with view of profit.”
When this exists, partnership has been created regardless of any
agreement, or recognition of the parties.
Two or more persons;
Carrying on a business (s. 45 – includes every trade, occupation or
profession) in common – two or more persons share responsibility for
the business and for the decisions which affect the business;
With a view of profit.
“Partnership” no more than a business relationship based on agreement.
Does not have a separate legal existence (contra a co.)
s.2 In determining whether partnership exists, regard should be had to:
(1) JT, TiC etc do not of themselves create partnership – where they do or do
not share in the profits made from the use of that property
(2) Sharing of gross returns not of itself create a partnership
(3) Receipt of share of profits = prima facie evidence of partnership, but not
conclusive
May be governed by an agreement, but can be oral/in writing/implied by conduct.
- Fundamental Characteristics -
Typical rights Right to be involved in decision-making which affect the business
and Right to share in profits of a business
responsibilities Right to examine accounts of the business
of partners Right to insist on openness / honesty from fellow partners
(useful Right to veto the introduction of a new partner
evidence) Responsibility for sharing losses made by the business
Any or all of these characteristics could be varied or excluded. At some point such
variations/exclusions may go so far as to extinguish the partnership.
- Duration -
Express/Fixed Until a time pre-determined by agreement
Implied/At will Forever until dissolved by notice, death or bankruptcy
- Statutory Formalities -
Business Where s.1192 – s.1206 CA 2006 apply:
names - There are controls over choice of partnership names (ss.1193, 1194)
- Requirement to reveal names + business address of the partners (s. 1201)
Name formalities will NOT apply if only using names of the partners
Certain words/phrases appearing in business names will require written approval
for Secretary of State
Info must appear on all stationery (S1202) + on a notice at any place of business to
which customers/supplies have access (S1204)
- Names of partners + address for each partner in GB for service of docs
- Non-compliance: offence punishable by a fine + partners unable to enforce
contracts if other party can show prejudiced by non-compliance
(SS1205, 1206)
May state on stationery statement: full list of partners available at principal place
of business (S1203)
Partnership Agreement – (terms NOT implied by Partnership Act 1890)
, Commencement When S1 satisfied not on date in agreement
- desirable to specify date: mutual rights + responsibilities as taking effect.
Financial Input State: how much capital each putting in + deal with future increases in
contributions (if anticipated)
Shares in Profits PA 1890 implies P&L split equally unless stated otherwise
and Losses - If contrary intention – can be changed. The agreement may provide for
various ways of dividing, including the following:
Salary Can be different amounts
- Reflect (eg):
o time spent in business – sleeping partners / part-time etc.
o Different degrees of skill/experience of partners
Interest Interest (at a specified rate) may be allowed on partners’ contributions, again
before surplus profit divided between them.
- Be simply to reward the partner for their contribution
Profit- Suitable ratio in which remaining profits are to be shared should be stated
sharing equal often appropriate if salaries + interest on capital are determined.
- State what to happen in event of loss particularly if salaries and interest
will still be awarded and so exacerbate a loss.
Ownership of Partnership asset = beneficial interest lies with all the partners equally.
assets - Can look to agreements – or there will be some other evidence of what
was intended
- Important to have an agreement that stipulates what are assets of the
partnership (refer to list in schedule)
Work input PA 1890 implies, in absence of contrary agreement: all partners entitled to take
part in the management of the business, albeit without any obligation to do so.
- No implication that partner to dedicate full time + attention to business
- Agreement to set out level of commitment required from each partner
(may require to work full/part-time OR dormant/sleeping partner).
The above is often in vague terms, eg “must dedicate his full time and attention”
- Often supplemented with clause that must not pursue any other business
absolute bar = enforceable
Decision- Unless contrary intention: made by simple majority (each partner has one vote)
making - changing nature of business OR introducing new partner unanimity
Changing terms of the agreement is a term of the contract between the
partners and cannot be altered without consent of all parties to the contract
(i.e. all partners consenting)
Terms Implied by the Partnership Act 1890
Section 24 Partnership Act 1890
SS Title Provision
(1) Rights of Partners All partners entitled to share equally in capital + profits of the business
(1) Duties of Partners All partners must contribute equally to losses
(2) Indemnification Firm must indemnify every partner for payments made + liabilities
incurred by him
a) in ordinary and proper conduct of business of firm, or
b) necessarily done for preservation of business or property of the
firm.
(3) Interest Partner making payment/advances for purpose of the business beyond
Sole Trader
A person who alone:
a) has the right to make all decisions affecting the business;
b) owns all the assets of the business;
c) is responsible for paying income tax on all the profits of the business; and
d) has unlimited liability for the debts of the business.
There is no single piece of legislation which governs a business run by a sole trader
Partnership
Two or more persons who, on the basis of a contract (written or not) between them:
a) share the right to take part in making decisions which affect the business or the
business assets (although they may have agreed that one or more of their number
will not be involved in day-to-day matters but only in fundamental decisions);
b) share the ownership of the assets of the business (although they may have agreed
that the firm will use an asset which is owned by one of the partners individually);
c) share the profits of the business (although the partners may have agreed not to
share these equally); and
d) share unlimited liability for the debts of the business (although if one does not pay
then the others must pay his share)
Limited Partnership:
form of unincorporated business is established under the Limited Partnerships Act
1907
there must be at least one general partner who has unlimited liability for all the
debts of the partnership.
LPs must be registered with the Registrar of Companies (who also acts as the Registrar of
LPs) in accordance with s 8 of the LPA 1907 before they can start trading
Partnership Act 1890
1 Definition 2+ people carrying out business with shared view of profit
2 Rules for determining existence of partnership indicia of S1:
o common business activities
o arrangements for sharing profits
o contributed capital and know how
o meet on a regular (quarterly) basis
4 Meaning of firm
5-10 Power to bind the firm
9 Liability of partners jointly liability for debt (S3 CLA severally liable)
10 Liability of the firm for wrongs
14 Liability by ‘holding out’ (holding out to be a partner = liability)
17 Liability of incoming and outgoing partners
(2): retiring does not = no liability
(3): may be discharged from liability by agreement
19 Variation of partnership terms = must have consent
24-25 Implied terms
26 Retirement from partnership at will
28-30 Duty to render accounts and info, to share private profits and not to
, compete
32-35 Dissolution
36 Rights of persons against apparent members of the firm – must give notice
S36(1): entitled to treat old members are members until given notice
S36(2): ad in London Gazette (future members) + circular (present members)
44 Rules for distribution of assets on final settlement of accounts
Limited Liability Partnerships Act 2000
1 Definition – is a body corporate
2 Rules for incorporation
4 Members
5 Relationship of members – governed by agreement/regulations per S15(c)
6 Members = agents (unless no auth and person knows) and notice
requirements
15 Application of co law LLPs (Application of the CA 2006) Regulations 2009
LLP Regulations 2001
Limited Partnerships Act 1907
4 Definition and constitution of ltd partnership
5 Registration of LP required
6 Modifications of general (partnership) law in case of LPs
7 Law of private partnerships to apply where not excluded (ie PA 1890 & CL)
8 Duty (of registrar) to register (on application)
8A Application for registration
8B Name of LP – must end with ‘limited partnership’ or ‘LP’
8C Certificate of registration (= conclusive evidence of existence)
13 Registrar to file statement and issue certificate
16 Inspection of registered statements
Approach to Partnership Question
1. Is there a partnership?
2. Who are the partners? Are they still partners?
3. What type of partnership is it?
(a) Fixed / At will?
(b) GP / LP / LLP?
4. What are the relevant terms?
(a) Express by oral/written agreement – s.19 PA 1890
(b) Inferred from conduct?
(c) Implied by PA 1890, LPA 1907, LLPA 2000
5. Apply to facts
6. Conclude
General Partnership
, - Creation -
s.1 PA 1890 “Partnership 2+ persons carrying on a business in common with view of profit.”
When this exists, partnership has been created regardless of any
agreement, or recognition of the parties.
Two or more persons;
Carrying on a business (s. 45 – includes every trade, occupation or
profession) in common – two or more persons share responsibility for
the business and for the decisions which affect the business;
With a view of profit.
“Partnership” no more than a business relationship based on agreement.
Does not have a separate legal existence (contra a co.)
s.2 In determining whether partnership exists, regard should be had to:
(1) JT, TiC etc do not of themselves create partnership – where they do or do
not share in the profits made from the use of that property
(2) Sharing of gross returns not of itself create a partnership
(3) Receipt of share of profits = prima facie evidence of partnership, but not
conclusive
May be governed by an agreement, but can be oral/in writing/implied by conduct.
- Fundamental Characteristics -
Typical rights Right to be involved in decision-making which affect the business
and Right to share in profits of a business
responsibilities Right to examine accounts of the business
of partners Right to insist on openness / honesty from fellow partners
(useful Right to veto the introduction of a new partner
evidence) Responsibility for sharing losses made by the business
Any or all of these characteristics could be varied or excluded. At some point such
variations/exclusions may go so far as to extinguish the partnership.
- Duration -
Express/Fixed Until a time pre-determined by agreement
Implied/At will Forever until dissolved by notice, death or bankruptcy
- Statutory Formalities -
Business Where s.1192 – s.1206 CA 2006 apply:
names - There are controls over choice of partnership names (ss.1193, 1194)
- Requirement to reveal names + business address of the partners (s. 1201)
Name formalities will NOT apply if only using names of the partners
Certain words/phrases appearing in business names will require written approval
for Secretary of State
Info must appear on all stationery (S1202) + on a notice at any place of business to
which customers/supplies have access (S1204)
- Names of partners + address for each partner in GB for service of docs
- Non-compliance: offence punishable by a fine + partners unable to enforce
contracts if other party can show prejudiced by non-compliance
(SS1205, 1206)
May state on stationery statement: full list of partners available at principal place
of business (S1203)
Partnership Agreement – (terms NOT implied by Partnership Act 1890)
, Commencement When S1 satisfied not on date in agreement
- desirable to specify date: mutual rights + responsibilities as taking effect.
Financial Input State: how much capital each putting in + deal with future increases in
contributions (if anticipated)
Shares in Profits PA 1890 implies P&L split equally unless stated otherwise
and Losses - If contrary intention – can be changed. The agreement may provide for
various ways of dividing, including the following:
Salary Can be different amounts
- Reflect (eg):
o time spent in business – sleeping partners / part-time etc.
o Different degrees of skill/experience of partners
Interest Interest (at a specified rate) may be allowed on partners’ contributions, again
before surplus profit divided between them.
- Be simply to reward the partner for their contribution
Profit- Suitable ratio in which remaining profits are to be shared should be stated
sharing equal often appropriate if salaries + interest on capital are determined.
- State what to happen in event of loss particularly if salaries and interest
will still be awarded and so exacerbate a loss.
Ownership of Partnership asset = beneficial interest lies with all the partners equally.
assets - Can look to agreements – or there will be some other evidence of what
was intended
- Important to have an agreement that stipulates what are assets of the
partnership (refer to list in schedule)
Work input PA 1890 implies, in absence of contrary agreement: all partners entitled to take
part in the management of the business, albeit without any obligation to do so.
- No implication that partner to dedicate full time + attention to business
- Agreement to set out level of commitment required from each partner
(may require to work full/part-time OR dormant/sleeping partner).
The above is often in vague terms, eg “must dedicate his full time and attention”
- Often supplemented with clause that must not pursue any other business
absolute bar = enforceable
Decision- Unless contrary intention: made by simple majority (each partner has one vote)
making - changing nature of business OR introducing new partner unanimity
Changing terms of the agreement is a term of the contract between the
partners and cannot be altered without consent of all parties to the contract
(i.e. all partners consenting)
Terms Implied by the Partnership Act 1890
Section 24 Partnership Act 1890
SS Title Provision
(1) Rights of Partners All partners entitled to share equally in capital + profits of the business
(1) Duties of Partners All partners must contribute equally to losses
(2) Indemnification Firm must indemnify every partner for payments made + liabilities
incurred by him
a) in ordinary and proper conduct of business of firm, or
b) necessarily done for preservation of business or property of the
firm.
(3) Interest Partner making payment/advances for purpose of the business beyond
