English Company Law - Limited Liability Partnership ( LLPS)
The Limited Liability Partnerships Act of 2000 (LLPA 2000) currently allows two or more people to form a limited liability partnership (LLP). Limited liability partnerships and limited partnerships are often confused by us , however the two company models are significantly different. A limited partnership is a specialized (and extremely rare) type of partnership that can be formed under the Limited Partnerships Act 1907. An LLP is a body corporate created under the LLPA 2000, whereas a limited partnership is merely a specialized (and extremely rare) type of partnership that can be formed under the Limited Partnerships Act 1907. Although both offer limited liability, the constraints imposed on limited partners in a limited partnership (particularly the inability to participate in management) make LLPs a far more appealing option. Understanding why the LLPA 2000 was adopted is critical to understanding the purpose and functions of LLPs. The joint and several responsibility of partners in major professional firms (e.g., accountants and solicitors) that may have thousands of partners globally meant that, for example, one partner in London may be personally liable for the unlawful activities of a New York-based partner he had never met. As a result, the largest accounting firms urged the UK government to create a new type of partnership that guaranteed limited liability to its partners, similar to that enjoyed by members of limited companies. The LLPA 2000 was born as a result. The tale of the passage of the LLPA 2000 is notable because only professional firms have indicated a strong desire to become LLPs. As a result, it is not a widely used corporate form, and it is certainly not one designed to meet the needs of small firms. This is illustrated by the fact that there were only 48,689 LLPs registered in the UK as of December 2019. (compared to over 4 million companies). Some claim that LLPs are hybrid entities with characteristics of both a partnership and a corporation. While this is true, there's no denying that LLPs have more in common with corporations than with partnerships: An LLP is formed by filing documents with the Registrar of Companies at Companies House, much like a registered company. An LLP, like a registered corporation, is a body corporate with corporate personality (LLPA 2000, s 1(2)). The members of an LLP are referred to as 'members' in the LLPA 2000. Members of an LLP, like members of most other registered businesses, will be limited in their liability. In general, LLPs are governed by company law, while there are few notable exceptions where partnership law applies. As a result, several elements of the CA 2006, as well as practically all provisions of the Insolvency Act 1986, will apply to LLPs as well as corporations. LLPs are also distinct from traditional partnerships. Liability In the case that a partnership is dissolved, the partners are personally liable for the firm's debts, and this liability is infinite. In contrast, when an LLP is wound up, its members are not required to contribute anything, however there are some exceptions (for example, an LLP's members can be found accountable for wrongful trading). As a result, the LLP addresses the partnership's main flaw, namely the partners' personal and limitless liability. Because the LLP has legal personality, it is responsible for its debts and can be held vicariously liable for the actions of its members, agents, and employees.
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English Company Law - Ordinary Partnership
An ordinary partnership is defined by Section 1(1) of the Partnership Act 1890 (PA 1890) as "the relation which exists between people carrying on a business in common with a view to profit." The partners' relationship The PA 1890 specifies standards governing the couples' connection. Many partnerships will have a written partnership agreement in place that spells out the partners' rights and responsibilities. If a partnership agreement does not exist, sections 24 and 25 of the PA 1890 imply that the partnership will be bound by a set of default provisions. In reality, unless the implicit terms are inconsistent with or prohibited by the provisions of the written agreement, these implied terms will apply even if there is a written partnership agreement. The following are some examples of implied terms: All of the partners are entitled to an equal share of the firm's profits and are required to contribute equally to the firm's losses. Every partner has the right to participate in the firm's management. Without the permission of all other partners, no new partners may be added to the firm. Only with the full approval of all partners may the partnership agreement be changed. A majority of the partners cannot expel a partner unless all of the partners have expressly decided to do so. The partnership's relationship with third parties The PA 1890 regulates the relationship between partners and third parties under sections 5–18. This includes the extent to which the partners can contractually commit the firm and the other partners to a third party, as well as the extent to which the firm and the other partners can be held accountable for a single partner's acts or omissions that cause a third party to suffer a loss. Agency The important clause in regards to a partner's authority to bind his partnership and co-partners to a third party is section 5 of the PA 1890, which states that each partner is an agent of the business and his co-partners. As a result, a partner can contractually commit his firm and his co-partners to a third party if he acts within his authority. In fact, if the partner's authority has been exceeded, or even where he has no authority, a binding contract may exist. Because each partner has the authority to bind his co-partners contractually, each partner is jointly liable for the firm's debts and obligations incurred while he was a partner. The partners' liability is personal and unrestricted, just like in a sole proprietorship. Liability for tortious and other types of wrongdoing For the criminal activities of other partners, partners may be held accountable in tort or found guilty. The partnership and each partner are vicariously accountable for the wrongful acts or omissions of another partner if the partner was acting within his power or the act or omission was made in the ordinary course of the firm's business, according to Section 10 of the PA 1890. Under section 10, liability is joint and several, which means that the claimant can sue a single partner, each partner individually, or all partners at once until he has recovered the full amount of his loss. Personal liability is both limited and unrestricted. English Company Law - Partnerships
For obvious reasons, two or more people who want to start a business together cannot do it as a sole proprietorship. For such individuals, a partnership, of which there are three types: the ordinary partnership (usually referred to simply as a 'partnership'), on which this section will focus; the limited partnership, which is a type of partnership that can be formed under the Limited Partnerships Act 1907 (limited partnerships are extremely rare and need not be discussed further here); and the limited liability partnership, which is a type of partnership that can be formed under the Limited Partnerships Act 1907 (limited partnerships are extremely rare and need not be discussed Sole Proprietorship
The sole proprietorship is the most basic business structure. A sole proprietor is merely an individual who does business on his or her own account (i.e. is self-employed). While a sole proprietorship is run for the profit of the owner, it is possible for sole proprietors to hire staff, albeit the vast majority do not. The crucial element is that a sole proprietorship is not incorporated, and the owner does not work in partnership with anybody else. There is no distinction between a sole owner and his firm, unlike incorporated structures, hence sole proprietorships lack corporate personality . As a result, the sole proprietor owns all of the business's assets and is entitled to all of the profits generated, but he is also responsible for all of the company's debts and liabilities. Regulation and formation Starting a business as a sole proprietor is extremely simple and requires far less formality than forming an LLP or company. All the potential sole owner needs to do is register as self-employed with HM Revenue & Customs (HMRC). Sole proprietorships are exempt from the Companies Act 2006 (CA 2006), thus they don't have to file accounts with Companies House and face far less regulation than corporations. However, because sole proprietors are self-employed and must file their own tax returns (or hire an accountant to do so), they should keep meticulous records of all transactions. Finance Sole proprietorships can be at a disadvantage when it comes to raising capital when compared to other business models. Adding new partners to a partnership can help it raise funds. Companies, particularly those that are publicly traded, can raise funds by selling stock. A sole proprietor who wants to keep his or her business as a sole proprietor has no choice but to use one of these choices. A solo proprietor must either put his own money into the business (risking losing it if the business fails) or take out a loan. Because many sole proprietorships are small businesses, banks are hesitant to lend to them, and obtaining large sums of borrowed capital is nearly impossible. Liability The main disadvantage of operating as a sole proprietorship is that the lone proprietor's liability is personal and unrestricted. Sole proprietorships cannot be limited in the same way that partnerships and corporations can. As a result, the sole proprietor's assets (including personal assets such as his home, car, and bank accounts) might be seized and sold to pay the sole proprietorship's obligations and liabilities. If the debts/liabilities of the sole proprietorship surpass the assets of the lone owner, he will most certainly be declared bankrupt. English Company Law - Introduction to Company Law
A person who intends to engage in some form of business activity must do so through some type of business structure, with different business structures offering distinct benefits and drawbacks. The sole proprietorship, the ordinary partnership, the limited liability partnership (LLP), and the company are the four primary business structures in the United Kingdom. The LLP and the company are both incorporated business forms, or 'bodies corporate,' as defined by their respective statutes. Unincorporated business arrangements include sole proprietorships and regular partnerships, which are not formed through incorporation. Key Summary to Company Law
Sole proprietorships, partnerships, limited liability partnerships, and corporations are the four main business structures. The most common business structure is a company. Although sole proprietorships are less formal, the sole proprietor's liability is personal and unrestricted. A regular partnership can be formed by two or more people who want to do business. Limited liability partnerships ( LLP) and companies are more regulated than sole proprietorships The partners' personal and limitless liability is a feature of the partnership. L.L.P.s were founded primarily to serve as a business vehicle for major professional businesses. LLPs are similar to corporations in many ways. The term "public company" refers to a company that can sell its stock to the general public. A private company cannot sell its stock to the general public. Other significant distinctions exist between public and private companies. Due to the fact that the vast majority of companies are limited liability, their members' liability is usually limited. |
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