Partnerships, LLPs and Registered Companies compared and contrasted

In document Unlocking Company Law (Page 84-87)

Small private companies

2.5 Partnerships, LLPs and Registered Companies compared and contrasted

The most important aspects of the three basic legal structure options available when more than one person is involved in ownership of a business: partnerships, LLPs and registered companies, are summarised, compared and contrasted in Table 2.2 below. The sole trader is omitted from this comparative exercise due to the absence of any business organisation laws uniquely applicable to sole traders. Contract and employment law are the key areas of law governing the operation of a business by a sole trader.

Partnerships Limited Liability

Partnership Act 1890. Limited Liability Partnerships

Act 2000.

Companies Act 2006.

Formation Exist from the point in time at which two or more persons begin to carry on a business in common with a view to documents and forms with the Registrar of Companies.

Separate personality

A partnership has no separate legal personality from its partners.

An LLP has a separate legal personality from its members.

A registered company has a separate legal personality from its owners and managers.

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CHAPTER 2 LEGAL STRUCTURES OF BUSINESS ORGANISATIONS

Partnerships Limited Liability for the debts and liabilities of the partnership.

A ‘Limited Partnership’ is a special kind of partnership that can have one or more partners with limited liability but must be registered: Limited Partnership Act 1907.

Members have no liability for the debts and liabilities of the LLP.

On a winding up, members are liable to contribute to the LLP the amount (if any) agreed in the LLP Agreement:

Insolvency Act 1986, s 74 as substituted by LLP Regulations 2001.

Members have no liability for the debts and liabilities of the company.

When called upon or on a winding up, members are required to contribute any unpaid part of the nominal value of the shares they own. Insolvency Act 1986, s 74(d).

Private companies can be registered as unlimited companies.

Capacity to act

A partnership is not a person separate from the partners therefore no question of its capacity arises.

LLP has the capacity of a natural person.

No doctrine of ultra vires.

Company has capacity of a natural person.

Ultra vires doctrine has applied historically but Companies Act 2006 ends its application to both old and newly registered companies except of capital, details of members and directors, annual returns and accounts and reports.

Audit of accounts

Accounts need not be audited. Accounts must be audited.

Exemptions similar to registered companies regime apply.

Accounts must be audited.

Exemptions for small (s 477) and dormant (s 480) companies.

Management Managed by the partners. Managed by the members.

Minimum of two designated members have administration responsibilities.

Directors are responsible for the management of the company almost always.

Rules stipulating how a registered company is to be managed are agreed in the articles. Model Articles (private and public companies) provide for directors to manage.

Entry into contracts

Every partner has implied authority to act as agent and bind the firm and the other partners to a contract:

partners are agents of each other.

All members are agents of the LLP.

Members are not agents of each other.

The board of directors can exercise all the powers of the company and bind the company to contracts.

No member has any implied authority to bind the company.

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In legal theory, the death or bankruptcy of a partner and any change in the partners, whether by a partner leaving or a partner joining, results in the old partnership coming to an end and a new partnership coming into existence.

In practice, tax rules combined with appropriate provisions in partnership agreements can mean that such a termination and commencement are legal technicalities. The partnership business is not wound up and the business continues.

An LLP continues in existence regardless of change in its membership.

A company continues in existence regardless of change in its members.

Transferring ownership rights

A partner can transfer his right to receive a share of the partnership profits and his right, on winding up, to receive a share of the partnership assets, to an assignee but the partner must continue to be a partner.

If a partner wishes to

withdraw from the partnership he cannot transfer his interest in the partnership to a third party who is to step into the firm as a partner in his place, as his exit will bring the partnership to an end and the third party may or may not be accepted as a partner in the new partnership

Members cannot transfer their ownership interest without the agreement of the other members.

A member/shareholder can transfer his shares to another person and cease to be a member of the company without the consent of the company or other members unless there is provision otherwise in the articles. in existence as long as the partners carry on a business in common with a view to making a profit.

LLP remains in existence until it is terminated by removal from the register.

Company remains in existence until it is dissolved by the registrar of companies removing its name from the register of companies.

Ownership of property

Property of a partnership is owned by the partners in common.

Property is owned by the LLP. Property is owned by the company.

Rights of property but their claims are subordinated to the claims of partnership creditors.

Members’ creditors have no claim against the assets of the LLP.

Members’ creditors have no claim against the assets of the company.

Floating

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CHAPTER 2 LEGAL STRUCTURES OF BUSINESS ORGANISATIONS

Partnerships Limited Liability

Partners are not employees of the partnership.

Members are not employees of the LLP.

Directors may be employees of the company. ‘Executive director’

normally describes a person who is appointed to be a director and has a contract of employment with the company.

Taxation Tax on partnership profits payable by partners (income tax).

No employer NIC contributions payable in relation to partners.

Employer NIC contributions payable by the partners as a business expense as employer of employees.

Tax on LLP profits payable by members as if the LLP was a

Tax on company profits payable by the company (corporation tax).

Shareholders taxed on dividends (income tax) and gains on sale of shares (capital gains tax).

Employer NIC contributions payable by the company as a business expense as employer of employees.

Table 2.2 Partnerships, Limited Liability Partnerships (LLPs) and Registered Companies compared and contrasted

In document Unlocking Company Law (Page 84-87)

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