Chapter 1: The Different Types of Business Flashcards
What are the key features of a sole trader?
They run unincorporated business on their own as a self-employed individual (this person is the onw who owns the business and therefore receieves the benefits or loses). They can operate in any trade or profession.
When is a business considered a ‘partnership’ aka. general partnership?
When two or more individuals own and run a business together.
How does a sole trader experience the benefits and loses of running a business?
They recieve money from clients direcly, pay any expenses, pay income tax as a self employed individual but can keep the profit.
What does ‘Personally Liable’ refer to?
A sole tader / partnerships are personally liable for all the debts related to the business. The personal and business assets will be seen as the same under the law.
How does being personally liable affect a sole trader in a case?
If a claimant (supplier) takes legal action against the defendent (sole trader), for not paying back debts - if the business cannot pay, then the claimant can get the money from the personal assets of the defendent.
What is the concept of ‘Unlimited Liability’?
It is the idea that there is no limit to a sole trader’s liability.
What is the legislation governing a sole trader?
There are no specific piece of legislation for this, but are governed by various pieces of legislation which can be applied generally to individuals and businesses.
What is the key piece of legislation that governs Partnerships?
Partnership Act 1980 (PA 1980) , the Act provides a default agreement for partnerships.
What is a ‘limited partnership’?
They are similar to partnerships, there must be one general partner who has unlimited liability for debts. But different, as they are allowed to have a limited parter whose liability is limited to the amaount they initially invested.
What does it mean if you say ‘limited liability is conditional’?
Specific conditions should be met in order for the person to be considered as having limited liability.
Which piece of legislation governs ‘limited partnerships’?
The Limited Partnership Act 1907 (LPA 1907) - LPs are the default format of business formation, they must be registered.
What are the main types of Companies?
- Private Companies, Limited by Shares (LTD).
- Public Companies, Limited by Shares (PLC).
- Limited Liability Partnerships (LLP).
Salomon v A Salomon & Co Ltd. (1897)
The claimant owned the company and was entitled to all the benefits. Defendant wanted the claimant to pay personally but the House of Lords rejected the claim and held that a comapny is legally incorporated and should be treated as an individual person with rights and liabilities. Therefore, it was acceptable to use a company to manage risk and avoid liability.
What does the phrase ‘piercing the corporate veil’ mean?
Looking behind the corporation (company) and impose liability on the individuals who owns/runs the company.
Prest v Petrodel Resources Ltd & Others (2013)
The Supreme Court held that the corporate veil can only be pierved when;
1. A person is under legal obligation/liability OR is subkect to an existing legal restriction AND
2. The person deliberately evades OR
3. The individuals deliberately frustrates by interposing (intervening between) a company under his control.
