SPA - Business

Question 1

What are some things to consider when deciding what business medium to pick?

Answer 1

1. Publicity
2. Complexity
3. Management
4. Liability
5. Taxation
6. Power structure

Question 2

Why might the initial starting costs for setting up a partnership not differ greatly to incorporating?

Answer 2

Because a partnership would still be advised to draw up a Partnership Agreement

Question 3

Why might a new company/LLP lose some limited liability benefits?

Answer 3

Because it is likely that a bank/landlord would still want a personal guarantee if it’s a new company/LLP

Question 4

What should a solicitor do if a conflict is discovered before a retainer is taken?

Answer 4

The solicitor may take instruction from only one client (typically, one they are already representing)

Question 5

What should a solicitor do if a conflict arises during the retainer?

Answer 5

The solicitor should inform the clients + consider whether they may continue to act for both clients.

Note - the clients may not consent to the solicitor continuing to act if there is a conflict

Question 6

How may a conflict be avoided?

Answer 6

With a limited retainer in which the solicitor agrees to act only with respect to issues where there is no conflict.

Question 7

What are the 2 exceptions that allow a solicitor to act despite a conflict betwen clients?

Answer 7

1. A solicitor may act for 2 clients with a conflict if they have a substantially common interest - e.g., 2 people who want to form a company or purchase land jointly,
2. A solicitor may act for 2 clients with a conflict if they are competing for the same objective (e.g., to purchase the same asset)

Question 8

When is a breach of the duty of confidentiality justified?

Answer 8

If the breach is necessary to prevent the commission of a criminal offence that will result in serious bodily harm,

If it is necessary to protect a vulnerable person

Question 9

What conditions need to be met for the ‘substantially common interest’ or ‘competing for the same objective’ exceptions to apply?

Answer 9

1. the solicitor obtains both clients’ informed consent in writing
2. where appropriate, the firm effectively safeguards each client’s confidential information, and
3. it must be reasonable for the solicitor to act for all the clients

Question 10

When is there no breach of the duty of confidentiality?

Answer 10

When:
i. the client consents to disclosure,

ii. disclosure is permitted or required by law (e.g., there is a statutory duty to court order requiring disclosure),

iii. the solicitor is being used by the client to perpetrate a crime or fraud

Question 11

How is the income of a sole proprietor taxed?

Answer 11

Treated as their income + is subject to income tax

Question 12

How is a partner’s share of partnership income taxed?

Answer 12

Treated as the partner’s personal income + is subject to income tax

Question 13

How is a member’s share of income from an LLP taxed?

Answer 13

Treated as the member’s personal income + is subject to income tax

Question 14

How is the income of a company taxed?

Answer 14

Treated as the company’s income and is not subject to income tax.

It is subject to corporation tax.

Additionally, if and when the company distributes its income to its shareholders in the form of dividends, the dividends are taxable to the receiving shareholders as dividend income

Question 15

Who may grant floating charges over their assets?

Answer 15

Companies and LLPs may, but sole proprietors and partnerships may not

Question 16

What voting rights do partners in general partnerships + LLPs generally have?

Answer 16

Generally have equal votes in making business decisions unless they agree otherwise.

Question 17

When will a partnership be formed?

Answer 17

If:
1. 2 or more persons,
2. Carry on a business in common,
3. With the intention to make a profit

Question 18

If it’s unclear whether the parties have formed a partnership, what is prima facie evidence that there is a partnership?

Answer 18

The sharing of profits is prima facie evidence that there is a partnership unless the receipt of the profits is:
i. repayment of a debt
ii. payment for employment, or
iii. annuity to a partner’s survivor

Question 19

Who can bind a partnership?

Answer 19

Every partner is an agent of the partnership + can bind the partnership in contract when they act with actual or apparent authority

Question 20

When does a partner have actual authority granted?

Answer 20

1. Express in any partnership agreement
2. Expressly, from a vote of the partners, or
3. Impliedly, from the partners’ failure to object to past actions

Question 21

What happens if a partner acts without actual authority?

Answer 21

The partnership can still be bound by an act done by the partner if they had apparent authority

Question 22

When does a partner have apparent authority?

Answer 22

A partner has apparent authority to carry on in the usual way business of the kind carried on by the partnership, unless:

i. the partner had no actual authority to act, and
ii. the third party knew the partner lacked actual authority or didn’t know they were dealing with a partner

Question 23

What is the test for determining whether an act is carrying on in the usual way business of the kind carried on by the partnership?

Answer 23

Objective.
Would a reasonable third party think a business of this kind would usually do this act?

Question 24

What happens if a partner doesn’t have actual or apparent authority to enter a contract on behalf of the partnership?

Answer 24

The partnership will not be bound on the contract, but the partner will be

Question 25

What will a new partnership be liable for when they join?

Answer 25

New partner is not personally liable for obligations of the partnership incurred before the new partner was admitted

Question 26

What will an outgoing partner remain liable for?

Answer 26

All obligations the partnership incurred before they retired, and Liable for obligations incurred after they retire unless they give: <> actual notice of their retirement to existing creditors, and <> publication notice in the London Gazette to everyone else

Question 27

What is the effect if a person holds themselves out as a partner of a firm even though they are not actually partner?

Answer 27

They may be held liable as if they were a partner to any third party who has given credit to the partnership on the strength of the holding out. The same rules apply if a person knowingly allows another to hold the person out as a partner

Question 28

What is the position re partners' letting the partnership use their property?

Answer 28

If a partner allows the partnership to use the partner's property but doesn't intend for it to be partnership property, it remains the partners' separate property + they may take it when they leave. Property owned by one of the partners before the partnership was formed will be treated as the partner's individual property unless the parties agree otherwise.

Question 29

What interest is a partner entitled to if they lend money to the partnership?

Answer 29

5% per annum unless agreed otherwise

Question 30

Who has the right to inspect the partnership's books + records?

Answer 30

Every partner

Question 31

What rights does a partner have re being paid?

Answer 31

Not entitled to be paid for work done for the partnership unless the partners agree otherwise. But, a partner is entitled to be indemnified by the partnership for payments made on behalf of the business.

Question 32

Unless agreed otherwise, what voting rights do the partners have in a partnership?

Answer 32

Each partner has an equal vote in decision making (it doesn't matter whether a party contributed more capital or works more than the other partners, unless the partners have agreed otherwise).

Question 33

What decisions require unanimous consent of all partners?

Answer 33

1. Admission of a new partner 2. Change in the nature of the partnership business 3. Alteration of the partnership agreement

Question 34

What is the effect of partners being fiduciaries of each other?

Answer 34

1. They have a duty to disclose information relevant to the firm 2. They cannot compete with the firm's business, and 3. They must account to the firm for any benefit or profit from any transaction concerning the partnership, its business, or use of the partnership's property

Question 35

What will cause a dissolution of a partnership?

Answer 35

1. Expiration of term/accomplishment of the goal stated in the partnership agreement 2. Partner gives notice of intention to withdraw in partnership at will 3. Death or bankruptcy of any partner (unless otherwise agreed) 4. Partnership business becomes unlawful 5. BY court order

Question 36

Why might a court order demand the dissolution of a partnership?

Answer 36

Because a partner: i. becomes permanently incompetent to enter a contract, ii. is guilty of conduct that would prejudicially affect the ability of the partnership to carry out its business, or iii. wilfully and persistently breaches the partnership agreement, OR If business can only be carried on at a loss

Question 37

When do partners continue to have authority to bind the partnership after dissolution?

Answer 37

In order to wind up the partnership's business (but the partnership will be bound for other contracts made by a partner unless notice was given of the dissolution)

Question 38

When a partnership is dissolved, what is the order of distribution of its assets?

Answer 38

1. Repay debts owed to outside creditors 2. Repay loans made by the partners to the firm 3. Return the partners' contribution

Question 39

Once partnership assets have been distribution, if there is an insufficient amount to pay everyone, how is the loss made up?

Answer 39

Each partner must contribute their share of the loss

Question 40

What must registration for an LLP include?

Answer 40

1. The name of the LLP, which must end in LLP or the words Limited Liability Partnership, 2. The location and address of the LLP's registered office 3. The names and addresses of the LLP's members and who will serve as the designated members 4. Details of people with significant control over the LLP

Question 41

How may an LLP change its name?

Answer 41

At any time by delivering a notice of the change to the Registrar of Companies. The change is effective when the Registrar issues a certificate of the name change

Question 42

What happens if an LLP carries on business without having at least 2 members for more than 6 months?

Answer 42

The person who carried on the business will be jointly and severally liable with the LLP for the debts of the LLP incurred after the initial 6 months + while the LLP has only 1 member

Question 43

How may new members be added to the LLP?

Answer 43

Only with the unanimous consent of the existing members

Question 44

What must be done if there are any changes to an LLP's membership or its designated members?

Answer 44

The Registrar of Companies at Companies House must be notified of changes in the LLPs membership or in its designated members within 14 days of the change

Question 45

What are designated members? How many does an LLP need?

Answer 45

LLPs must have at least 2 designated members whose main duty is to submit required filings to Companies House

Question 46

How may a person cease to be a member of an LLP?

Answer 46

By giving reasonable notice to the other members + giving notice to the Registrar at Companies House within 14 days

Question 47

What are people with significant control for an LLP?

Answer 47

1. Those holding more than 25% of the surplus assets on a winding up 2. Those holding more than 25% of the rights to vote on those matters which are to be decided upon by a vote of the members of the LLP 3. Those holding the right to appoint or remove the majority of those entitled to take part in management, or 4. Someone who otherwise can exercise significant influence or control over a trust or the members of a firm that is not a legal person but meets any of the other specified conditions in relation to the LLP