15: Business Organisations Flashcards
(24 cards)
15.1-15.3: What are the different structures of business
- Unincorporated organisations
- no separate legal identity: the business and owner are legally the same
- includes : sole traders & partnerships
- risk: if the business can’t pay its debts, the owner’s personal property can be taken - Incorporated organisation
- separate legal identity: the business can act in its own name
- owners/shareholders are not personally responsible for business debts
- includes: Ltd, PLC, LLP
15.4: What are 3 main type of partnerships?
- General Partnership ( ordinary partnership)
- Limited Partnership: used for things like private equity investments
- Limited liability partnership (LLP)
15.4.1: What is a general partnership?
When 2 or more people come together to carry on a business with the goal of making a profit
- Each partner us self employed and shares the profit
- Unlimited liability: partners are personally responsible fit the businesses’s debts
- The partnership has no legal identity separate from the partners themselves
15.4.1.1: How is a general partnership established ?
A general partnership is a contractual agreement, and partners can set their own terms
Partnership agreement: it’s advisable to have a written agreement that lays out: partner names, capital contributions, profit-sharing arrangements, management responsibilities, dispute resolutions
15.4.1.2: when does a general partnership commence
When business activity starts
Eg: Valencia v Llupar
15.4.1.3: explain the name of a partnership
The name can be the partners names or something else but not include limited or Ltd
- Partners Ames must be displayed at the business premises unless there are more than 20 partners, then a list must be available fir public inspection
Passing off: a partnership can be sued if it’s name is too similar to another business, causing confusion
15.4.2: What are the relationship between partners
- Fiduciary & Contractual: partners owe duties to eachother based on trust abd agreements
- Partners as agents: agents of the firm and each other
15.4.2.1: What are the duties of partners
- Duty of disclosure: partners must share true and full information affecting the partnership
- Duty to account: must account for any benefits gained without consent from transactions, property , or business
- Duty not to compete: a partner can’t compete with the partnership without others’ consent eg: Don King production vs Warren
15.4.2.2: what are the rights of partners
- Sharing profit and losses: share equally unless agreed otherwise, courts may adjust profit sharing based on actual contributions if it’s unequal
- Indemnity for liabilities: partners can recover expenses related to partnership business
- Interest on excess contributions: partners get 5% interest in extra contributions above agreed capital
- Management rights: managing the business unless restricted by agreement or can choose to be sleeping partners no management but still sharing profits/losses
- No salary: partners don’t receive salary, they share in profits, they can agree to salary arrangements
- Admission of new partners only at the approval of all existing partners
- Decision- making
- Access to partnership books
15.4.2.3: Explain partnership property
- Property bought with partnership funds belongs to the partnership
- any personal property must be kept separate, and increase in value belongs to the partnership
- on Dissolution: partnership assets are used to pay off debts first before property is used
15.4.2.4: is expulsion from partnership allowed
- yes with explicit agreement
- even if expulsion is allowed it has to be done in good faith
Case example: Blissset v Daniel - invalid not done in good faith
15.4.3.1: Explain authority of partners to bind the firm ?
Every partner is an agent of the firm and co-partners
A partner’s actions in the usual course of the business bind the firm unless: the partners had no authority and 3rd party knew the partner had no authority
- Partners can restrict each others power via agreement
Eg: Mercantile v Garrod
15.4.3.2: Explain liability for contracts
Partners are jointly and severally liable for the firm’s contracts
- Each partner can be sued for the entire amount
- A partner who pays more than their share can claim contributions from co-partners
- Under the civil liability, claimants can sue other partners if one fails to pay
15.4.3.3: Explain liability for torts?
Partners are jointly and severally liable for torts
- if the wrongful act is not in the ordinary course, only the responsible partner is liable
Case: Dubai Aluminium Co Ltd v Salaam - solicitor committed fraud through business dealings, it was during business so all partners were liable
15.4.3.4: Explain liability of outgoing and incoming partners
Outgoing partners:
- liable for debts before retirement
- may be released from liability via a notation (b agreement with firm + creditors)
Incoming partners
- not liable for debts incurred before they joined, unless: they agree to a notation
15.4.3.5: Explain holding out as a partner
Partner is liable if they represent themselves as a partner when they are not
- In order to be liable the third parties must have relied on that representation
15.4.4: when does an automatic dissolution occur
- When a fixed term ends
- A specific purpose is completed
- A partner gives notice
- A partner dies or becomes bankrupt
- A partners share is charged
- The business becomes illegal
Eg: Hudgell, Yeates and Co c Watson - ended due to illegality
15.4.4: Explain dissolution by Court order
Court may dissolve a partnership if:
1. A partner becomes permanently incapacitated
2. A partner’s conduct harms the business
3. A partner breaches the agreement or behaves unreasonably
4. The business can only be run at loss
5. It’s just and equitable to dissolve
15.4.4: How are assets distributed on dissolution
Order of lay,ent
1. Debt to outsider
2. Loan from partners
3. Capital contributions repaid to partners
- if funds are short, losses shared in profit-sharing ratio
4. Remaining assets shared as per profit sharing ratio
15.5: What are the structure, rules and registration for limited partnerships ?
Structure: at least one general partner ( full liability), 1/+ limited partners ( limited liability to the amount they invest
Rules: can’t take part in management if they do lose liability can’t bind the firm in contracts
Registration: must be registered at Companies House, must include ‘ Limited Partnership’ or ‘LP’
15.6: what are the key features of an LLP?
Separate legal entity from members
Liability of members is limited
Can hold property, sue, be sued
Taxed as a partnership
Governed by LLP agreement
15.7: what are the structure of companies
Separate legal identity
Formation methods
1. Royal Charter ( eg: BBC)
2. Act of Parliament
3. Registration under companies act 2006
Types of companies: PLC, private companies, unlimited companies, companies limited by guarantee, CIC’s
15.7: What are the corporate legal features
Contracts: can contract in its own name, directors act on behalf of the company
Criminal Liability: can be fined or prosecuted
Ownership: own it’s assets, not shareholders
- Macaura v Nothern assurance confirms individuals can’t insure company property in their own name
15.7.2.5: what is lifting the corporate veil ?
Courts may disregard the company’s separate personality if:
- it’s used to evade legal obligations
- It acts as a sham or fraudulent front
Eg: Jones v Lipman: used company to avoid selling property
