ACCA F4 Flashcards

1 Types of Business Organisation - The owner 'is' the business - owns the assets and is liable for all the debts. - No legal formalities are required to set up a sole trader business/practitionership - This form of business is inappropriate for large businesses or those involving a degree of risk.

1 Types of Business Organisation Defined by Partnership Act 1890 (PA 1890) as the relationship which subsists between persons carrying on a business in common with a view to profit.

1 Types of Business Organisation Formed under the Limited Partnerships Act 1907

1 Types of Business Organisation An artificial legal entity where the liability of the members is limited to the amount of capital they have agreed to contribute.

1 Types of Business Organisation A corporation is an artifical legal person.

2 Types of partnership 1) A partnership is a relationship which subsists between two or more persons carrying on a business in common with a view to profit. 2) A partnership can be a small operation or as with some large firms of solicitors and accountants partnerships with several hundred partners.

2 Types of partnership 1) General partner - Actively involved in the day-to-day business 2) Limited partner in a limited partnership - Contributes a specific amount of capital, Liability limited to that amount. Cannot take part in the management of the firm. 3) Salaried partner - Will received a fixed amount in income. Not a real partner unless he also receives a share of the profits.

2 Types of partnership 1) General or ordinary partnership - Governed by Partnership Act 1890 - this is the default position if a partnership is not formed under either of the two Acts below 2) Limited partnership - Governed by Limited Partnership Act 1907 3) Limited liability partnership (LLP) - Governed by Limited Liability Partnerships Act 2000.Legally separate from its members

2 Types of partnership In order for a partnership to exist, a business must be carried on with a view to profit. Therefore the persons involved in the partnership intend the business to yield a profit and they are all entitled to share in that profit.

2 Types of partnership - joint ownership of property - the sharing of gross returns - the sharing of expenses. Cox v Coulson (1916) Facts: C agreed with M that M would put on a play at C’s theatre. C was to have 60% and M 40% of the gross box office receipts. C paid the expenses of running the theatre and M paid the expenses of putting on the play. During a performance the claimant, who was in the audience, was accidentally shot by one of the actors. The claimant sued C alleging that C was M’s partner and was jointly liable with M. Held: C was not M’s partner because they merely shared gross box office receipts

2 Types of partnership A partnership begins as soon as the partners start their business activity. The actual agreement may be made earlier or later than that date.

2 Types of partnership No formalities are required to form general partnerships, no documentation and no registration. The reason for this is that The Partnership Act 1890 applies to every partnership whether written or oral. Many of the Act's provisions apply, unless they are excluded by a partnership agreement. The PA 1890 provides that partners shall share profits equally, but in cases where partners contribute different amounts of capital this may not be appropriate and partners will need to agree specific profit sharing arrangements within their partnership agreement.

2 Types of partnership The partnership agreement is a contract. Like any contract it may be: - Express - Implied The partners are contractually bound by the terms they have agreed, even if they conflict with PA 1890.

2 Types of partnership A limited partnership is a partnership in which the liability of one or more partners is limited to their capital contribution.

2 Types of partnership - There must be at least one partner with unlimited liability - The partnership must be registered with the registrar of companies as a limited partnership - Limited partners may not participate in the management of the business. If they do, they forfeit their limited liability. - A limited partner has no power to bind the firm to contracts, i.e. unlike the unlimited partners, he is not an agent of the firm.