Consolidation notes on BLP's setting up in business covering:
- Different business media in a large table (Ltd, GP, LLP)
- Considerations when engaging a new client
- Exam-style questions on partnerships
- Comparison public companies vs. private limited companies
/!/ These notes hav...
Considerations when Sole trader = conducting (General) Partnership = relationship between Limited company LLP = hybrid structure of company and partnership
choosing business personally persons (=General Partners) carrying on as flexibility of a partnership but with limited
business in common with a view of profit (s.1(1) liability for Members: s. 1(2) LLPA 2000.
PA 1890)
Traditionally architects, accountants, law firms,
etc.
Governing Statute None, but they are subject to Partnership Act 1890 (PA 1890). Companies Act 2006 (CA 2006) Companies Act 2006
commercial /tax legislation as
individuals
There doesn’t have to be any intention on the Limited Liability Partnership Act 2000
part of the parties to be or form a partnership,
as it will be determined on the facts: s.1.
Limited Liability Partnership Regulations 2001 /
2009.
‘Commercial activity’ required.
Liability of investors Unlimited personal liability of General Partners (GP) have unlimited personal Shareholder liability limited to the amount Members’ liability limited and are not personally
individual liability on either a joint or joint and several unpaid on their shares (s 3(2)). liable over and above their capital share in the LLP.
basis determined by the nature of the liability. Creditors can assert their rights against the
Contract = joint = sue all GP: s.9 PA // company but if the company has
Tort = joint and several basis sue any GP: insufficient funds to meet its liabilities !/!: personal guarantee may be required and see
ss. 10 and 12. cannot then pursue claims against SH. two sections below.
Creditors are entitled to satisfy debts by If insolvency, SH will be liable to lose the
enforcement against the personal assets of each money that they have invested in the
of the partners. company by subscribing for its shares but
that is the extent of their liability.
!/!
New GP not automatically liable to debts
incurred by the Partnership before he
joins: s. 17(1). !/!:
Courts can pierce the corporate veil
(=the separate legal personality) in
Former GP: the interests of justice, i.e. façade.
o still liable after retirement in respect of
debts incurred by the partnership while
a partner unless novation of relevant personal guarantee may be required
agreement to absolve with consent of of a creditor, i.e. if creditor has
other partners obtained: s. 17(2). strong bargaining position.
o can be liable for new partnership debts
after left as they are treated by 3rd
parties as still be members until 3rd
parties are notified of the change in
partnership:
if the GP had had actual
dealings with the 3rd party
before, 3rd party must have
been given actual notice that
GP has left.
If GP hadn’t had actual dealings
with the 3rd party before
departure, 3rd party must have
been given constructive notice
= published in the London
Gazette s. 36.
in all cases remove name
from letterhead of firm.
Non-GP only if holds himself out as being
a partner by
o (1) representing himself as such to a 3rd
party
o (2) 3rd party acts in response
o (3) 3rd party believes in good faith
believes in rep: s. 14.
Legal status of the Individual – sole trader is the No separate legal personality from the Separate legal personality from its owners, Separate legal person so LLP can own property,
business medium business and is individually individuals forming the partnership so General directors, employees and creditors so enter contracts, sue and be sued in its own name
responsible. Partners own property, enter contracts (see company can own property, enter
below binding nature of contracts), sue and are contracts, sue and be sued in its own name
sued.
Consequences?
Directors owe duties to the company
vs. SH
SH have rights against the company
vs. D
3rd parties have rights against the
company vs. D
!/! Tax: companies pay CT on profits and
income while individuals pay IT on own
dividend income.
!/!: Tax: Partnership must file a tax return with
HMRC but partnership doesn’t pay tax; each
member is taxed (=CGT, IT) as a partner on their
share of the partnership profits
!/! Tax: it is a partnership and each member is
taxed (=CGT, IT) as a partner on their share of the
partnership profits
Number of persons 1 2 1 (s 7(1)) 2 (at least two must be designated members to
needed appoint auditors, sign accounts, make filings)
!/!: if a business is carried on for over 6 months
after the LLP is down to 1 member, that member
becomes jointly and severally liable with the LLP
for debts incurred after the 6 month grace period
benefit of limited liability lost
Expenses before / in None. None, but a partnership agreement (deed) is Administration and legal costs in Administration costs LLIN01
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