WS1: Business models and partnership agreements Flashcards
(24 cards)
What is the definition of a partnership? Is it a separate entity?
A relationship between persons carrying on a business in common with a view to making profit
No
How do you determine whether a partnership exists?
Looking at the facts; profit sharing, collective decision making, held out as being a partner, etc.
What duty do partners owe one another?
Overriding duty of good faith; honest and full disclosure, no unauthorised personal profit, no conflicts of duty versus interest
How is liability shared between partners?
Joint and several - when a creditor obtains judgment against one / a number of partners
Contractual - joint
Tortious - joint and several.
How does liability extend in partnerships regarding new partners and retired partners?
New parter is not liable to debts incurred before they joined
Partner is still liable after they retire in respect of any debts incurred whilst they were a partner.
When can a partner be liable for partnership debts incurred after they have left?
A 3rd party can treat all apparent partners of the firm as jointly liable to pay any new debt incurred by the partnership unless that 3rd party has been notified by actual / constructive notice.
When might a non-partner become personally liable for a partnership debt?
If they have held themselves out as a partner:
- Given a representation to a third party to the effect that a person is a partner
- A 3rd party took action in response
- 3rd party believed the representation
When will a partner’s unauthorised act bind a firm, and when will it not?
Will bind the firm when:
- Act is for carrying on business of the kind carried on by the firm
- Act is carrying on such a business in the usual way
Will not bind the firm when:
- 3rd party knew that partner was not authorised
- 3rd party did not know or believe that partner was a partner
What power does a non-partner have to bind the firm against the partnerships wishes?
Common law rules of authority here - if someone has apparent / ostensible authority, this will be binding.
How are pure partnerships taxed?
Each partner is liable to tax as an individual on their share of income - tax transparency
Both partnership and partner must make a tax return
What tax must partners in a partnership pay?
Income tax and CGT
Is a partner liable for the tax on other partners’ shares of partnership profits?
No
What is the default capital and profit sharing agreement in PA?
Partners are entitled to share equally in capital and profit / must contribute equally to losses.
Are partners entitled to a salary under PA 1890?
No
How are decisions made under PA 1890?
Majority
Unanimity: changes to the nature of the partnership business, introducing a new partner, varying the rights and duties of partners.
What is the PA 1890 stance on expulsion?
A partner can only be expelled by majority vote if all of the partners have previously agreed that a majority can do this - otherwise, must be done by unanimity.
Under PA, what happens to a partnership when it is dissolved? What should a partnership agreement say to mitigate against this?
Technical dissolution - partnership ends.
Partnership agreement should state explicitly that the partnership will continue as between the remaining partners
What clause is in PA that prevents partners competing with the business while they are a partner?
Non-compete clause; if they carry on any business of the same nature they must account to the firm for all profits made.
How can a partnership agreement limit the ability of partners to compete with the partnership after they leave?
Non compete clauses / non solicit clauses non dealing clauses
What is a ‘designated member’ of an LLP? What are they responsible for/
Must sign accounts on behalf of members, do CH filings, act on behalf of the LLP if it is wound up
What is the most important difference between an LLP and a company?
For tax purposes the LLP is treated as a partnership; the partners of the LLP are taxed, not the LLP itself.
Partners also pay CGT
LLP itself pays VAT however.
What key things does an LLP have that partnership does not?
Legal personality, limited liability for members, subject to restrictions, accounts at CH, can create a floating charge over assets of the LLP/
What things can an LLP do that a company cannot?
No share capital / capital maintenance requirements
Tax transparency like a partnership
How is the liability of LLP members limited if an LLP goes insolvent?
Liability of each partner will be limited to the amount set out in the LLP agreement
