This document provides model answers to 3 questions taken from the 2020/2021 past paper for the Business Entities module. Author achieved a first class grade for the module.
Choose THREE out of the FOUR questions numbered (a) – (d) below. Please
write short, but detailed, answers to each of the three questions you have
chosen. The combined length of the three answers must not exceed 1,000
words.
Make sure each answer is of equal length and provide reference to primary
law (statutes and case law) in support of your answers. All questions carry
equal marks. Answer either:
(a) The differences between a partnership and a Limited liability partnership
(LLP). Give reference to statutes to support your answer.
OR
(b) What is the difference between a fixed charge and a floating charge?
Which businesses can and cannot grant a floating charge? Give reference to
primary sources of law (statute, case law) to support your answer.
OR
(c) What is the difference between the grounds of termination of a director
and disqualification of a director? Give reference to statutes in support of
your answer.
OR
(d) Explain the powers of the administrator during the process of new style
administration of a company and the extent to which stakeholders’ interests
are protected during that process.
Total 100 marks. Total marks for Section A is 100 marks.
Model Answer
, Part (a)
The law of partnership is regulated by the Partnership Act 1890 (‘PA 1890’), whereas Limited
Liability Partnerships (‘LLP’s’) are regulated by the Limited Liability Partnership Act 2000
(‘LLPA 2000’). One key difference between a partnership and an LLP is the liability of its
partners (or ‘members’ in an LLP). s.9 of the PA 1890 provides that all partners of the firm in
Scotland are jointly and severally liable for “all debts and obligation of the firm” while they
are a partner. This liability means that creditors can sue the partnership and all partners will
be personally liable to pay. Where a creditor may sue a few of the partners personally, those
partners can claim renumeration from their fellow partners. In contrast, members of LLP’s
are not joint or severally liable for the LLP’s losses and its liability is generally limited by the
amount of capital. However, if they have breached a fiduciary duty, the court may deem that
member liable to pay the liquidator.
Another key difference is their ability to raise funds against their assets. In general,
partnerships in Scotland are only able to borrow against the value of the partnership’s
heritable assets and not the moveable assets, unless they assign those assets specifically to
the lender or deliver the assets to the lender. LLPs, on the other hand, are able to borrow
against the value of both their moveable and heritable assets and may even grant floating
charges.
Another key difference is the requirements relating to the accounts. A partnership is not
required to disclose its accounts to anyone except the HM Revenue and Customs. This is
beneficial to a partnership since it means neither employees of the partnership, nor creditors
can know how much the partners earn. In comparison, although the LLPA 2000 remains silent
on the requirement, there is an obligation for LLPs to publish their accounts. This often
discourages partnerships converting to LLP status.
Part (b)
A fixed charge is one that is secured over an asset itself. This prevents the owner from
disposing of said asset without the consent of the charge-holder. In scots law, the asset of a
fixed charge must be in the hands of the lender for the charge to be valid.
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