A more recent version of these Formation Agreement 3rd Party notes – written by Cambridge And Oxilp And College Of Law students – is available here.
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Formation & Agreements There are two main forms of businesses in the UK: page 4 Unincorporated Incorporated No formal registration Formal registration Treated as being the same as its Legal entity with separate existence from its owners owners e.g. Sole trader and Partnership e.g. Limited Liability P'ship, Public LC (PLC), Private LC (Ltd) page 10 Business
Advantages Very easy to form. Freedom to run as you like. All profits are the owner's.
Partnership Chap 1, 13, 14, 15, 16, 17
No formalities: very easy to form. Freedom to run as they like. Allows commercial secrecy. Tax-relief for start-up losses. All profits are the Partners'.
Limited liability for debts. Greater status. Potentially many investors.
Limited Liability Partnership (LLP) page 15
Limited liability for debts. Freedom to run. Support of joint-decisions.
Rights & Duties??Partnership at Will?Disadvantages Unlimited liability for debts. Lacks 'incorporated' status. No day-to-day support Unlimited liability for debts. Cumbersome decision making. Uncertainty w/out agreement. Cannot create a floating charge. Apparent authority will bind the firm. Must register, formality, costs. More legal duties & liabilities. Information is public. Profits are company's. Must register. Information is public. Extra formality and costs.
All decisions taken on a simple majority basis (s.24(8)) Unanimity is required on two occasions:
1. Introducing a new Partner (s.24(7))
2. Change in nature of the business (s.24(8)) If a Partner has entered into a contract, will it bind the firm?
Did the Partner have actual authority? If yes, the firm is bound (s.6) Did the Partner have apparent authority? Yes if: (s.5)
1. Transaction relates to the business of the firm;
2. A Partner would normally be expected to have authority;
3. 3rd P did not know that X had no authority; and
4. 3rd P knew or believed X to be a Partner?
Fiduciary duty of utmost good faith Rights to examine the accounts (s.24(9)) Share in gross profits and losses (s.24(1)) Involved in decision-making Veto the introduction of a new partner Share in profits they make from a competing business (s.29) Insist on openness and honesty It can be written or oral It does not deal with duration Must serve notice for dissolution (method of which is determined by whether it was a written or oral partnership) and need no reason It is then terminated immediately
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