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Various Types of Partnership in Business

University: European Business School London

  • Unit No: 8
  • Level: Post Graduate/University
  • Pages 10 / Words 2500
  • Paper Type: Assignment
  • Course Code: ECE2001
  • Downloads: 0

INTRODUCTION

There are certain ways in which a business can be operated, such as, sole trader, partnerships and the company. A sole trader is such time of operation in which only an individual is responsible for the liabilities of the business where as in company, an incorporated business are carried by registering it according to the rules and regulations (Sweet,and Schneier, 2012) .

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Here, we are going to discuss about partnerships. A business can be carried out by such process. In this, not only on individual, but the liabilities are also upon every member or partner of the firm. Generally, there are three types of partnerships, unlimited, limited and limited liability partnerships.

The prosperity of a company is the prior duty of the director. His loyalty is toward his company and its shareholders. They are certainly fiduciary agents and are incorporated with duties. Directors are nominated by the shareholders to manage the benefits of them. A company cannot achieve its goal without having a director. Therefore a director plays an important role in maintaining the benefits and administration of a company.

In this report, there is a critical examination of various types of partnership, especially unlimited and private limited partnerships with decide cases and precedents. Also, in the second task we have elaborated the duties of a directors which he's invested for the benefits and growth of the business under Companies Act 2006.

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TASK 1

Unlimited Partnership

Unlimited Partnerships, also known as “general partnerships”. According to this kind of partnership the liability of partners are similar in the context of debt of the business. This is a similar case of equity or full partners (Beiker, 2012) . There is a criteria where the responsibility of paying debt arises for the partners even when they do not share the profits, but a salaried partners and consultant partners are entitled for receiving salaries.

According to the judgement of the Court of Appeal in M Young Legal Associates Ltd v Zahid Solicitors (a firm) (2006) that it is not essential, before the legal thumb of partner, to share profits in the situation of debt liability. As per the definition in section 1 of the Partnership Act 1890, partners are indulge in a business for earning the profits from it but there is no provision of sharing such profits.

Another way of becoming a partner is by estoppel. According to it a person acquires the rights of being a partner in the business. Others may be responsible by estoppel or under the definition given in M Young Legal Associates Ltd v Zahid Solicitors (a firm) (2006). It is generally essential for the partners to construct a contract, known as a partnership agreement which can be expressed or implied and in writing because it is an evidence that the people are doing business as a parter in the firm. However, it is not essential that the agreement is in writing, it can be an oral agreement and,also a partnership can be formed by the way of conduct or action (Paul, Smith and H Blumberg, 2012) .

For instance, if A acts as if he were the partner of B he may become one in law, at least to a creditor who has depended on the evident circumstances, even though when contract is not there, oral or written, between the partners. The liability of the partners is unlimited, so if the firm cannot pay its debts, each general or equity partner is liable to pay them with a right to ask for a contribution from the others.

Private limited partner

Alimited Partnerships comprise of more than one person called General Partnership, who are responsible for all debts and obligations of the firm; and one or more persons called limited partners, who contribute a sum or sums of money as capital, or property valued at a stated amount. Limited partners are not responsible for the debts and obligations of the firm beyond the amount contributed.

A limited partnership is such in which on the non fulfilment of debt the partner may lose the capital but they are no liable as the unlimited liability. These partnerships are not commonly used in the generality of business organisations. They are used for collective investment schemes such as unit trusts (Hossain, 2013) . The firm manages the scheme and the investments. Authorisation under the Financial Services and Market Act 2000 by the Financial Services Authority is required by those who act as managers of the scheme. The limited partners cannot take part in management. If they do, they become personally liable for debts incurred by the firm during their period of management.

This is the most recently created form of business ownership, the limited liability partnership or LLP. It is registered with the Registrar of Companies and owns the assets of the business as a juristic person separate from the members, as they are called. The LLP is fully liable for its debts but there is no personal liability in the members as is the case with the unlimited partnership. If the LLP becomes insolvent, the members may well lose the capital they contributed but beyond this have no duty to contribute to the assets of the LLP if on winding-up

there is a shortfall. They can agree to make such a contribution in the LLP agreement but are not forced by law to do so. However, the court has a discretion to order repayment of any withdrawals made by a member of an LLP within the two years prior to winding-up if the member knew or ought to have concluded that the withdrawal would increase the risk of subsequent insolvency (Mason, 2017) .

Experience of the LLP shows that up to now the relevant legislation, i.e. the Limited Liability Partnerships Act 2000, has been used mainly by partnerships of solicitors and accountants and other professionals where personal liability, e.g. for negligence claims, can be high if the firm cannot meet the damages. Detailed provisions contained in the Limited Liability Partnerships Act 2000 and regulations were based largely on the Companies 1985 Act. The government consulted in November 2007 on the application of the Companies Act 2006 to Limited Liability Partnerships (LLPs). The intention was to ensure that LLPs remain an attractive business medium for businesses, as it was envisaged that LLPs should remain distinct from companies. Accordingly, it is important to bring the LLP Regulations up to date with the 2006 Act. The provisions should achieve the correct balance between the interests of those who want to become LLPs and those who are dealing with LLPs. Regulations on accounts and audits

provisions are to be published ahead of other provisions. These came into effect for LLPs in Great Britain and Northern Ireland on 1 October 2008, for financial years beginning on or after that date. The remaining provisions will be made based on the 2006 Act and will be published in due course. These provisions are due to come into effect in October 2009.

Task 2

Duty to act within the powers (section 171 Companies Act 2006)

A significant change has been made in the CA 2006 for directors to act according to the statutory structure for their legal liabilities. The duties of directors are the result of case law that has been decided by the court. These judgements were created in a series of duties of the directors.

As descried in the section 171 to 177 the directors duties are depending upon judicial interpretation. New duties are expressed in wider terms than it has been discussed in the common law rules (Givol and et. al., 2011) . According toLexi Holdings Plc (In Administration) v Luqman (2007): the issue was not whether the directors knew of their fellow directors’ misconduct, but, had they performed their duties as directors, they would have discovered it and either prevented it or brought it to an end. Accordingly, the judge commented that ‘the defence that complete inactivity was a sufficient discharge of her fiduciary and common law duties fails the reality test’.

As per section 171 of the CA 2006 the directors duty is to act with in the constitution of company and imply such powers for which they are conferred. When any act is done outside the ambit of its power then it shall be treated as voidable.

Also, in Foster Bryant v Bryant (2007) the law on directors’ duties was considered. This case concerned the alleged breach of a director’s fiduciary duties during a period of notice after he had resigned as a director but when his resignation had not yet taken effect. Section 170 makes clear that the duties are owed to the company and this gives directors a shield against claims by a wide variety of interest groups. The duty is to the company and not outsiders.

Duty to act within powers, states that a duty to act within the powers (section 171 Companies Act 2006)

A significant change has been made in the CA 2006 for directors to act according to the statutory structure for their legal liabilities. The duties of directors are the result of case law that has been decided by the court. These judgements were created in a series of duties of the directors (Kapka-Skrzypczak and et. al., 2011) .

As descried in the section 171 to 177 the directors duties are depending upon judicial interpretation. New duties are expressed in wider terms than it has been discussed in the common law rules.. According to Lexi Holdings Plc (In Administration) v Luqman (2007): the issue was not whether the directors knew of their fellow directors’ misconduct, but, had they performed their duties as directors, they would have discovered it and either prevented it or brought it to an end. Accordingly, the judge commented that ‘the defence that complete inactivity was a sufficient discharge of her fiduciary and common law duties fails the reality test’ (Keenan & Riche's Businesses).

Also, in Foster Bryant v Bryant (2007) the law on directors’ duties was considered. This case concerned the alleged breach of a director’s fiduciary duties during a period of notice after he had resigned as a director but when his resignation had not yet taken effect.

Section 170 makes clear that the duties are owed to the company and this gives directors a shield against claims by a wide variety of interest protector must act in accordance with the company’s constitution and use those powers only for the purposes for which they were granted.

Note: the major constitutional document is the articles and not the memorandum (Uprety and Salman, 2011) .

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Duty to promote the success of the company (section 172 Companies Act 2006)

Under section 172, a director of a company must act in a way that he or she considers to be in good faith and would be most likely to promote the success of the company for the benefit of its members as a whole. The Act goes on to state that, in fulfilling the duty imposed by this section, a director must (so far as reasonably practicable) have regard to, the likely consequences of any decision in the long term; the interests of the company’s employees; the need to foster the company’s business relationships with suppliers, customers and others; the impact of the company’s operation in the community and the environment; the desirability of the company maintaining a reputation for high standards of business conduct; the need to act fairly as between members of the company.

In Re Smith v Fawcett that the company’s directors must exercise their discretion bonafied in what they consider - not what a court may consider - is in the interests of the company, and not for any collateral purpose.

It is the duty of the director to not use the property of the company for his own purpose. It is his priority to promote the interest of the company, also to act in good faith for the sake of his company's members (Ahlgren and et. al., 2013) .

In Lonrho Ltd v. Shell Petroleum Ltd Lord Diplock, it is the duty of director to not only watch shareholders interests,but also comply with company's creditors as well. In Liquidator of West Mercia Sofetwear Ltd v. Dodd it was decided on the insolvency of the company, the company's director work in the interests of the creditors. So when a case of insolvency arises , it is the fiduciary duty of director's to proceed towards creditors of the company.

The duty is owed to the company alone and not to any other stakeholder, e.g. the workforce. However, what is new is that stakeholder interests must be considered. This could lead to litigation in the sense that in reaching a particular decision the interests of one or more stakeholders were not considered fully or at all. Board meetings could become more difficult in terms of decisions taken (Reed, 2012) .

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Duty to exercise independent judgement (section 173 Companies Act 2006)

Section 173 provides that a director of a company must exercise independent judgement. This duty, the section states, is not infringed by acting in accordance with an agreement made with the company that restricts the exercise of discretion by its directors; or in a way authorised by the company’s constitution. It is not certain whether delegation of duties, which is not dealt with by the duties expressly, is included. It probably neither permits nor restricts delegation. This matter should be dealt with in the articles. InCrowther Group Plc v International Plc, it is the duty of the directors to think on the betterment of the company and comply according to it.

In Fulham Football Club Ltd. v Cabra Estates it was decided that directors could not construct any contract, which will restrain them to exercise of their duty and how they will vote in future election. However, they can make an agreement, which can be justified as very advantageous for the company, where they are working in a good faith in the best interest of the company (Kapetanakis, Kolokotsa and Maria, 2014) .

A nominee director is appointed in a company which is a sub division of any parent company, in order to protect the interest of the company. It is the duty of Nominee Director to follow the instruction of the people who appointed him but not blindly. In Boulting v ACTT, such directors are not obliged with the instruction of their nominator, they can refuse the directions given by them when it was not in the favour of betterment of the company. Also a nominator is not liable for the act done by the nominee which is not beneficial or does any damage to the company (Baumann and et. al., 2011) .

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CONCLUSION

The Company Act 2006 was enacted to codify the duties of the directors which they have to perform for the betterment of their business. The directors has some duties to the shareholders and the company so as to the directors do not misuse there power invested on them by CA 2006. The directors have liability of working according to their power and exercise reasonable care and skill. The directors are also liable to the creditors of the company for the purpose of the insolvency of the company. It is generally expected from the directors to work for the betterment and in good faith of company.

REFERENCES

  • Sweet, J. and Schneier, M., 2012.Legal aspects of architecture, engineering and the construction process. Nelson Education.
  • Beiker, S.A., 2012. Legal aspects of autonomous driving.Santa Clara L. Rev.,52, p.1145.
  • Paul, S., K Smith, P. and H Blumberg, H., 2012. Investigating legal aspects of cyberbullying.Psicothema. 24(4).
  • Hossain, K. ed., 2013.Legal Aspects of the New International Economic Order. Bloomsbury Publishing.
  • Mason, J.K., 2017.Medico-legal aspects of reproduction and parenthood. Taylor & Francis.
  • Givol, N and et. al., 2011. Medico-legal aspects of altered sensation following endodontic treatment: a retrospective case series.Oral Surgery, Oral Medicine, Oral Pathology, Oral Radiology and Endodontics.112(1). pp.126-131.
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