ATT CTA Law CBE - Partnerships

ATT CTA Law CBE - Partnerships

1. Go into business with one or more persons

   • Partnership act 1890
     • “the relation that subsists between persons carrying on a business in common with a view of profit”
       • "relation" - type of contract
       • No particular formalities
         • Orally
         • Writing
         • Implied by conduct of parties
       • Existence is a question of "fact and law"
       • Once formed HMRC must be notified for income tax and NIC
       • "view of profit"
         • Sharing of "net" rather than gross profit
           • "Net" Profit after expenses
         • Still applies if suffering losses "intention"
       • Partners must "act in common"
         • every partner has a say in management
         • "sleeping partner"
           • no say in day to day or management
   • Types of partnership
     • General partnerships
       • Most common
       • If one partner dies - partnership ends
       • non-juristic person
         • No seperate legal identity from persons who formed it
         • Sometimes referred to as "firm"
       • Unincorporated body of persons
       • Any type of business
         • Clubs and societies cannot be partnerships as not businesses
       • Begins when "operational activities" are performed
         • Trader putting money at ris
         • Acquisition of goods
         • provision of service
         • entering into contracts to provide goods
           • negotiation of contract is not in itself sufficient
     • Limited partnerships
       • One partner has full unlimited liability "general partner"
       • One or more partners have "limited liability"
         • Cannot take part in managment
         • Cannot withdraw their capital
         • Cannot contract with third party, without losing limited liability
         • Cannot dissolve partnership by notice
       • Use: invest without being involved in day 2 day
       • Not common in UK
     • Limited liability partnerships
       • limited liability
       • Register with companies house
       • corporate body
         • seperate legal identity
           • unlimited liability
           • Liability of partners is limited to capital contribution
       • Transparent for tax purposes
       • Incorporation document
       • 2 designated members
         • filing certain notices with companies house
         • signing and filing accounts
         • appointing auditors
       • Each member is an agent of LLP
       • Perpetual succession
       • If LLP becomes insolvent
         • company liquidation provisions
   • Two or more individuals
   • Two or more companies
   • Written partnership agreements
     • fills in details that PA 1980 doesnt cover
     • override terms implied of PA 1890
     • Bespoke clauses
     • Partnership agreement
       • Name
       • Date
       • Capital proportions
       • Profit sharing
       • Meetings
       • Restrictions
       • Admissions
       • death or retirement
       • financial statements
       • Indemnities
       • Dispute resolutions
   • partnership property
     • Must be used for business purposes
     • Brought into the business by partners who formed
     • Bought with partnership money
     • co-owned
       • On sale gain is shared between and tax individually according to profit sharing ratio
     • Needs to be distinguised from personal property
       • Statement of practice D12
     • Can have fixed charges but not floating charge
     • Creditor of partner in private cannot take partnership property
   • Duties between partners
     • good faith
       • true accounts and full information
       • account for any profit
       • account for profit made in a business of same kind or competing with firm
     • access to partnership books
     • management
     • capital losses and profits shared equally
     • no entitlement to remuneration
     • No interest is paid on capital contributed by partner
     • Interest at 5% per annum on advances
     • Partnership interest
       • Right to surplus arising from sale of partnership propert
       • Right to share of profits
       • Right on dissolution to any working capital they have contributed
   • Dissolution
     • Pay off external debts
     • Repayment of advances
     • Repaying capital
     • Left over profit-sharing ration
   • Closing down the business
     • Redundancy payments
     • Rent
     • terminate supply agreements
     • De-registration from VAT
     • "closing year rules"

2. Not necessarily partnerships

   • Joint ownership of property
     • e,g, co-owners of property
   • Sharing of gross returns
     • e.g. Author receiving % share of sales from publisher
   • Reciept of a share of profits
   • "salaried partners"

3. Partnerships and 3rd Parties

   • Forming contracts
     • Each partner is an "agent" of the firm
       • Law of agency
         • Express authority
           • Explicitly "provided in partnership agreement"
         • Implied authority
           • Conclude contracts to sell goods or services that relate to business
         • Apparent authority
           • 3rd party believes that the person i.e. salaried partner is a partner.
     • Each partner is a "principal"
       • Be bound by contract made by another partner in the course of business
         • "third party didn't know" partner can't bind, partnership will still be bound by contract
         • "pledge credit" not related to ordinary course of business - other partners not liable
         • It is about "perception"
   • Liabilities to creditors
     • Unlimited, joint and several liability to creditors for debts of business
       • Only debts of business
         • Not partner debt
       • PAYE, VAT, employer NIC are business liabilities
       • New partners
         • Liable to debts after joining
           • unless they agree to become liable to prior debts
       • Retirees
         • Still liable to creditor debt
           • Need to inform creditor of retirement

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