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LPC- BLP MODULE - PARTNERSHIPS (DISTINCTION)
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Notes on business partnerships.
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BLP - PARTNERSHIPSThe start of a partnership.
Where two or more persons want to establish a business relationship between themselves
without becoming a company, partnership is only one of a number of options.
Where there are documents governing relations within a partnership that documentation
can be kept away from the public gaze as there are no disclosure requirements for
partnerships but there are such requirements for companies.
What is a partnership?
A partnership arises where two or more persons agree that they will run a business
together and actually do so.
o The term ‘partnership’ therefore describes no more than a business
relationship based on an agreement.
o The agreement may be oral or in writing or may even be implied by conduct.
A partnership need not necessarily be recognised as such by the parties since the
existence of a partnership depends on whether or not the definition contained in
section 1 of the PA 1890 applies.
o Section 1 – ‘partnership is the relation which subsists between persons
carrying on a business in common with view of profit’.
There must be more than a mere agreement or setting up a partnership to form a
partnership. There must be the carrying on a business in common.
o Two or more persons must share responsibility for the business and for
decisions which affect the business – in other words, there must be two
proprietors.
A partnership does not have a separate legal existence.
A partnership may be created:
o For a specific purpose or for a pre-determined period of time; or
o So as to continue without reference to duration – a partnership ‘at will’.
The persons in a partnership would usually be people but they could be two or more
companies. This might be the case where companies form a joint venture often
specifically to take on a new project.
In order to be able to identify a particular relationship as being a partnership it is
necessary to know the fundamental characteristics/ the rights and responsibilities of
partners:
o The right to be involved in making decisions which affect the business;
o The right to share in the profits or the business
o The right to examine the accounts of the business
o The right to insist on openness and honesty from fellow partners
o The right to veto the introduction of a new partner
o The responsibility for sharing any losses made by the business.
Any or all of the rights and responsibilities may be varied or excluded by the
agreement governing the relationship, although at some point variations or
exclusions could go as far as to deny the existence of the partnership.
Setting up a partnership.
, Since the existence of a partnership is established by applying the definition to the
relationship it follows that there is no necessary formality.
A written agreement is invaluable as evidence of the relationship and its terms.
It is also useful for the partners to have a written ‘constitution’ to which they may
refer.
o It may provide solutions to disagreements or disputes and thus perhaps avoid
future litigation.
Formalities required by statute.
Business names
o Where sections 1192-1206 CA 2006 apply there are controls over the choice
of partnership name (sections 1193,1194).
o These controls and requirements will not apply if the name of the partnership
business consists simply of the names of the partners because the act itself
will not apply.
o If the act applies certain words or expressions forming part of the business
name will require the written approval of the secretary of state for business,
innovation and skills.
o In some partnerships it would be unrealistic to comply with the legislation
requirements for stating partners names on stationary. There is no limitation
on the size of partnerships.
o It is provided that the partnership may instead include on its stationary a
statement that a full list of partners is available at the principal place of
business. (section1203)
Other statutory obligations which may arise at the start of a partnership are not
peculiar to partnerships and may arise at the start of any business.
o Obligations concerning income tax, VAT, and National Insurance.
o A partnership will have to notify HMRC of the identity of the partners.
The Law of partnership and its use in joint ventures.
Partnership may be a suitable vehicle for a group of individuals to engage in a
business venture together because of the informal nature of partnerships, the
commercial secrecy that is possible and the ability for the partners to claim tax relief
for start-up losses.
These attributes also serve to make a partnership a suitable vehicle for two or more
companies which wish to combine forces to start a new venture together.
o Although the partners are companies not humans, the law is still the same.
The Partnership agreement.
Section 24 of the PA 1890 contains a number of provisions concerning the running of the
partnership that will be implied not a partnership agreement in the absence of express
provision.
o The act is limited in scope and inevitably cannot do more than treat all
partners equally.
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