Business Law and Practice LPC Notes (2022) - High distinction/98% attained
I obtained a grade of 98% using these notes and resources ONLY.
Includes notes, workshop tasks and notes, past papers, exam procedure plans, exemplars and more.
When purchasing, please provide your email address in ...
DistinctionNotesLPC
WS1: Partnerships and Types of Business Entity (Chapters 1, 13, 14, 15, 16 & 17)
Brief Overview of Different Structures (Trading Vehicles)
Unincorporated Business – requires few/no administrative steps to be formed. Usually treated as being
the same as its owners with no separate legal status.
Incorporated Business – require a formal registration process before they can legally exist. Have a
separate legal existence from their owners.
Type What is it? Advantages Disadvantages
Sole trader Someone who runs a business on his → No formal steps except → Unlimited liability
(sole own as a self-employed person. They: being registered with for business debts:
practitioner) ✓ Have the right to make all the HMRC personal assets
decisions affecting the business; → Freedom to run as may be used to
✓ own all the assets of the business; owner sees fit repay debts
✓ are responsible for paying income → Sole decision-maker → Lacks legal status
tax on all the profits of the business; → All profits belong to of incorporated
and owner forms
✓ have unlimited liability for the debts → No day-to-day
of the business. support
✓ Work entirely alone or employ
people
General Governed principally by the Partnership → Very easy to form → Unlimited liability
Partnership Act 1890. (only require two for firm’s debts
✓ Occurs where two or more persons people) → Decision making
run and own a business together → Freedom to run as can be
with a view to make a profit. owners see fit cumbersome
✓ Is unincorporated – NOT a body → Support of joint → Lack of written
corporate decision making agreement lead to
→ All profits belong to uncertainty
owners – the partners → Lack status of
incorporated
forms
→ Leaving partner
must be brought
out by remaining
partners (may not
be favourable)
Companies ✓ A company in the UK is formed by → Limited liability for → Must register to
registering certain documents with business debts set up
a public official, in accordance with → Greater status than → Extra formality and
the Companies Act 2006. other forms costs to run
✓ Has separate legal personality → Potentially larger pool → Extra legal duties
✓ Decisions are made either by the of investors and potential
company’s directors or liability for
shareholders. directors
o Directors run the company. → Information (inc
o Shareholders are the owners. finances) made
1
, DistinctionNotesLPC
✓ Subject to corporation tax, not public
income tax → Profits earned by
✓ Liability is limited to its constitution company, not
– CA 2006, s3(1). Can be: Limited by owners directly
shares (more usual) or guarantee
✓ Types of companies
o Public company limited by shares
o Private company limited by
shares
o Other less common types
Limited A form of unincorporated business → Limited liability for → Must register to
Partnerships established under the Limited business debts set up
Partnerships Act 1907. → Freedom to run as → Information (inc
(not a ✓ Similar to partnership in that there business owners see fit finances) made
separate must be at least one general partner → Support of joint public
legal entity) who has unlimited liability. decision-making → Some extra
✓ However, an LP is permitted to have (ordinary matters are formalities and
(introduction a limited partner whose liability is decided by a majority costs to run
of a new limited to the amount he initially of the GENERAL
partner – do invested, providing: partners)
not need ▪ Not controlling or managing
consent of the LP
the limited ▪ Not having the power to take
partners) binding decisions; and
▪ Not removing his contribution
to the LP for as long as he is in
business.
✓ LPs must be registered with the
Registrar of Companies.
Limited A form of incorporated business → Limited liability for → Must register to
Liability established under the Limited Liability business debts set up
Partnerships Partnerships Act 2000. → Extra formality and
(LLPs) ✓ Hybrid between a partnership and a costs to run
limited company
✓ Can only be formed by two or more
members carrying on a lawful
business with a view of profit
✓ Must be registered with CH and pay
fee to do this
✓ Separate legal personality
✓ Liability is limited
✓ Partners taxed as if the business
were a partnership rather than a
company
✓ Run with informality and flexibility
of a partnership
2
, DistinctionNotesLPC
Partnerships
Approach to an Exam Question
1 Is there a partnership?
2 Who are the partners? Are they still partners?
3 What type of partnership is it?
→ Fixed / At will?
→ GP / LP / LLP?
4 What are the relevant terms?
→ Express by oral/written agreement – s.19 PA 1890
→ Inferred from conduct?
→ Implied by PA 1890, LPA 1907, LLPA 2000
5 Apply to facts
6 Conclude
Watch out for
✓ The time frame – is there a gap? What could have happened in between?
✓ Profit – be careful, have they been deliberately vague? Is it interest? An agreed
payment? Consultancy fee?
✓ Do you need more information? Ask questions!
✓ Restating statute terms? Clarity, contractual remedy.
✓ What will happen to the partnership on dissolution? On death of a partner? Try
and think of questions that will be asked by the partner in this scenario…
✓ A partnership – either an express agreement which need to be able to ascertain
the terms of and advise on, or an implied agreement by conduct/ PA 1890 which
again need to be able to advise on.
✓ Acting as agent? Do they have a share of the profits?
Recognising the Existence of a Partnership
General Partnership
Creation
s. 1 PA 1890: ▪ “Partnership is the relation that subsists between persons carrying on a business in
statutory common with a view of profit.”
definition → When this exists, partnership has been created regardless of any agreement, or
recognition/intention of the parties.
✓ Two or more persons
Persons may be company (Interpretation Act 1978 – unless told otherwise,
persons means legal persons)
✓ Carrying on a business (s. 45 – includes every trade, occupation or profession)
in common – two or more persons share responsibility for the business and for
the decisions which affect the business; do not need to be involved on a day-
to-day basis (low threshold);
✓ With a view of profit
• Each partner must register with the HMRC.
• If partnership made solely of individuals, partners taxed separately as self-employed
individuals, paying income tax on their share of the profits
• Does not have a separate legal status
3
, DistinctionNotesLPC
s. 2: guidance ▪ In determining whether partnership exists, regard should be had to:
(1) Joint Tenancy, Tenancy in Common etc. do not of themselves create partnership –
whether they do or do not share in the profits made from the use of that property
(2) Sharing of gross returns does not of itself create a partnership
(3) Receipt of share of profits = prima facie evidence of partnership, but not
conclusive
▪ Putting in capital is also an indication of a partnership
Effect of Creation ▪ A partnership has no separate legal personality
▪ This means:
▪ Partnership assets are owned by the partners, not the partnership
▪ Partners will be personally liable for any debts
▪ Beneficially, partnerships have a desirable lack of formality and there is no
requirement to make as much information public
Decision making ▪ Decisions are made by a majority vote (s24(8))
▪ Except:
- A decision to change the nature of the partnership business
can only be done unanimously (s24(8))
- New partners can only be introduced with the consent of all
existing partners (s24(7))
May be governed by an agreement, which can be oral/in writing/implied by conduct.
Fundamental Characteristics
Typical rights and responsibilities of partners include:
✓ To be involved in making decisions (s24(5))
✓ Share in the profits, any losses and ownership of assets of business (s24(1))
✓ Examine the accounts (s28)
✓ Insist on openness and honesty from fellow partners
✓ Fiduciary relationship with other partners (s28)
✓ Veto the introduction of a new partner (s24(7))
✓ Share unlimited liability for the debts (joint and several) (s24(1))
Duration
Express/Fixed Until a time, pre-determined by agreement (s.32(a))
Implied/At will Forever until dissolved by notice (s.32(c)) and (s.26(1)), death or bankruptcy (s.33)
Formalities
• There are no necessary formalities.
o However, written agreement is invaluable as evidence of relationship and its terms.
o It may also be useful to have a written constitution to which they may refer.
Effect of a Partnership Ending
• Any party will have the authority to wind up the firm’s affairs – see s39 & s44
• Proceeds will shared out in the following order – s44:
a) Creditors
b) Partners who have lent money
c) Partners’ capital entitlement to be repaid
• Any surplus will be shared between the parties
Advantages Disadvantages
❖ Allows commercial secrecy ❖ Can created fixed charges (but not floating)
❖ Informal in nature, easy to start up ❖ Each partner is fully liable for all debts of
❖ Flexible – make own arrangement/rules business
❖ Tax relief for startup losses can be claimed ❖ Any partner may act in apparent authority and
bind the firm
4
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller LPCDistinctionNotes. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £7.49. You're not tied to anything after your purchase.
