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Company Law Lecture Notes
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Introduction & Legal Structures of Business OrganisationsSectors of the Economy
• Public sector
– government owned or controlled sector
• Third sector
– Non-governmental
– Not for profit only?
– ‘Value-driven’ – that is, organisations that are primarily motivated by the desire to
further social, environmental or cultural objectives rather than to make a profit per
se
– Principally reinvest surpluses to further their social, environmental or cultural
objectives
– Are in the place between State and (the) private sector
• Fourth sector
– Using private investment to work on common-good social programs
• Private sector
– for profit
– approximately 5.7 million businesses in the UK (2017)
Legal Structures of Business Organisations
,Key Legal Structures of Business Organisations
• Sole traders
• Partnerships
• Limited liability partnerships (LLPs)
• Registered companies
Classification of Business Organisations
• By legal structure (above)
• By size:
– Micro
– Small
– Medium
– Large (250 or more employees)
Beware the ‘SME’ label
• EU defines micro, small and medium-sized enterprises (SMEs)
• EU defines micro, small and medium-sized undertakings for accounting purposes (SMEs)
• UK company law has its own definitions of micro-entity (s. 384A) and small and medium
sized companies
• HMRC has its own definitions of SMEs e.g., for research and development tax relief
• BEIS has its own definition of SME for collecting statistics
Sole Traders
• c 3.4 million (of c 5.7 million UK business enterprises)
• Eg.s: window cleaners, barristers
• One individual owns the business
• One individual is entitled to all profits
• Can employ others (only c. 7.5% or 258,000 do so)
• Business assets are not legally separated from the sole proprietor’s personal assets (no asset
partitioning)
• The sole proprietor is party to all contracts entered into
, • Those injured or suffering damages as a result of an act of the sole proprietor, or an
employee in the course of the business, sue the sole proprietor and have access to all assets
of the sole proprietor both business and personal
Partnerships
• c. 414,000 (no register)
• Historically used by professional firms eg. solicitors, accountants
• Partnership Act 1890
• No formal agreement is required (s. 1(1)) but a written partnership agreement/deed is
recommended
• No legal limit on the number of partners
• Can employ others (29% do)
• Not a separate person in law (except in Scotland)
• Default laws (internal arrangements)
Many of the provisions of the Partnership Act 1890 are “default” laws. They apply in the absence of
agreement to the contrary.
Eg partners share the profits and must contribute to the losses equally (s. 24).
• Mandatory laws (external relations)
Some provisions of the Partnership Act 1890 or mandatory laws. They cannot be contracted out of
by agreement between the partners vis a vis third parties.
Eg partners are liable to third parties for each others’ acts in the course of the partnership business
(s. 10)
• Partnership property is owned by the partners jointly as tenants in common
• All partners are entitled to share in the profits and must contribute to the losses
• Partners are agents for all other partners
• Those injured or suffering damages as a result of an act of a partner or an employee in the
course of the partnership business can sue the partners (one, some or all) and have access
to all assets of all partners, business and personal, although partnership assets are used up
before personal assets can be accessed.
• Partners cannot sell their interests in the partnership without affecting the partnership:
• When a partner leaves, the partnership is, strictly speaking as a matter of law,
dissolved.
• If the business is carried on by the remaining partners, it is, strictly speaking, a new
partnership.
• New partners cannot be added without affecting the partnership:
, • When a new partner joins the partnership, strictly speaking as a matter of law, the
old partnership is dissolved.
• A new partnership comes into existence.
Limited Partnerships (not LLPs)
• A partnership in which one or more BUT NOT ALL partners are limited partners
• Not a popular option: c.45,000 registered as at January 2018
• Governed by the Partnership Act 1890 as supplemented by the Limited Partnerships
Act 1907
– Do NOT confuse a limited partnership with a limited liability
partnership formed under the LLPA 2000 (see below)
• Must be registered with the registrar of companies
• New ones must have “Limited Partnership” or LP at the end of their name (2009 ff)
• A limited partner is NOT permitted to take part in the management or business of
the partnership.
• Limited partners have limited liability for debts & liabilities
Partnership Law Reform
• Law Commission Report on Partnership Law Reform (Law Com No 283, 2003)
Proposed that partnerships, whether general or limited, should be incorporated business
organisations but general partnerships should not have limited liability
• Government response:
Rejected incorporation for general partnerships
Put forward proposals to reform limited partnerships
Limited partnership reforms to be made in stages
Only noteworthy reforms made to date:
– 2009: all new limited partnerships must include “Limited Partnership” or “LP” at the
end of their name.
– 2017: introduced "private fund limited partnerships" or "PFLPs“ alleviating pressure
for reform of general/limited partnership law
• Scottish limited partnerships used for fraud prompting a further consultation:
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