Company law I 2008 2009 semester one lecture outline I an overview of our company Law Course

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1. Available Business Vehicles: The Models

  • Sole Trader

Individual person carrying on business without having registered a single member company. The individual’s dealings will be governed by the general law of tort, contract, trust etc. No more to say.

  • Partnership:

Two or more people carrying on business together and not registering a company to use for their business. Three Types of Partnership:

  • Partnership Act 1890

  • Limited Partnership Act 1907

  • Limited Liability Partnerships Act 2000

  1. Partnership Act 1890

  • The oldest and most basic model. Strongly based on contract and equity in respect of relations among the owners (“partners”). Section 1(1) PA 1890: Partnership is the relation which subsists between persons carrying on business in common with a view to profit.

  • “Persons” - includes companies - Newstead v Frost [1980] 1 All ER 363 but same accounting rules apply to such partnerships as apply to companies - Partnerships and Unlimited Companies (Accounts) Regulations 1993 SI 1993/1820

  • “Business” - Not non-profit organisation which is unincorporated association - Wise v Perpetual Trustee Co. [1903] AC 139

  • “In Common” - participation in the business - Saywell v Pope (1979) 53 TC 40

  • “With a View to Profit” - if this is present other additional motives do not prevent a partnership - Newstead v Frost [1980] 1 All ER 363. Participation in net profits is prima facie evidence of partnership status but, without more, is not enough - section 2(3) Partnership Act 1890 and Saywell v Pope (1979) 53 TC 40.

  • Unlimited Liability but note (below) Limited Partnerships Act 1907 and Limited Liability Partnerships Act 2000 to gain some limited liability while using a partnership model

  • Mutual Agency - Partnership Act 1890 section 5: “Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership.”

  • Joint liability for partnership debts – section 9

  • Duty of Utmost Good Faith Between Partners

  • Maximum of 20 Partners up to 21st December 2002 - except solicitors, accountants, stock exchange members and other professionals – under sections 716-717 Companies Act 1985. Those sections have now been repealed by the The Regulatory Reform (Removal of 20 Member Limit in Partnerships etc.) Order 2002 SI 2002/3203.

  • More generally, this structure is governed by Common Law and Equity and was developed by the courts using rules that were codified in the 1890 Act. It is flexible and, in terms of relations between partners, the Act frequently “fills gaps” by providing rules that apply in the absence of agreement to the contrary e.g.

  • Equal share of capital and profits and losses – section 24(1)

  • Every partner can take part in management – section 24(5) – compare company structure.

  • One partner one vote on most issues – section 24 (8) but admitting a new partner or changing the partnership’s area of business needs unanimity – section 24 (7) & (8)

(ii) Limited Partnerships Act 1907

This legislation is little used. Its main characteristics are:

  • There must be at least one partner with unlimited liability - section 4(2).

  • Those with limited liability must take no part in management – section 6(1).

  • The Partnership is registered with the Registrar of Companies – section 5.

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