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COMPANIES AND PARTNERSHIPS There are three main types of business unit: the sole

trader, the partnership and the company.

However, under the LIMITED LIABILITYPARTNERSHIPS ACT 2000 a new type of businessunit, a limited liability partnership (LLP) can beformed which is a cross between a company and apartnership. This Act became law in April 2001.

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Differences between Companies and

PartnershipsA company is a type of corporation, registered

under the COMPANIES ACT l985.

A partnership is

the relationship which subsists

between persons carrying on business in commonwith a view to profit. s1 PARTNERSHIP ACT l890.

Note, LLPs are registered at Companies House and

receive a certificate of incorporation.

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Case lawA company has separate legal personalityfrom its

members.

SALOMON V SALOMON & CO. [l897] LEE V LEE'S AIR FARM LTD. [l961]

MACAURA V NORTHERN INSURANCE [l925]

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The Corporate Veil Note that the Corporate Veil can be lifted in certain

circumstances.

For instance where there is evidence of fraud/illegality

See Gilford Motor Co v Horne 1933

Daimler Co Ltd v Continental Tyre Co 1916

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Essential DifferencesA partnership is an unincorporated association, having

no separate legal personality from the partners. It mayhave a firm's name but this does not give it corporate

status, and the partners are fully responsible for theacts of the firm.

Limited Liability Partnerships are corporate bodieshaving a separate legal personality from their

members

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Limited Liability The members of a company may have limited

liability, i.e., the liability of the shareholders islimited to their fully paid shares. The company's debts

belong to the company, not the shareholders, even ifthe company is insolvent.

Partners usually have unlimited liability, they are fullyresponsible for all partnership debts.

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Limited Liability Partnerships

Limited Liability Partnerships enable the partners to

have limited liability, although they will be personallyliable to third parties for their own wrongful acts andmight be liable in the event of insolvency.

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Perpetual SuccessionA company has perpetual succession and is not

affected by the death of shareholders, or any change inthe ownership of its shares. It continues to exist until

it is wound up either by the court or by the members.An ordinary partnership may be terminated on the

death, retirement, bankruptcy or insanity of a partner.

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Limited Liability PartnershipsAn LLP, since it is incorporated, is not affected by the

death, etc. of a member. His share may be inherited,but the beneficiary will not be able to take part in themanagement of the firm, being entitled only to a sharein the profits.

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Separation of Ownership There may be separation of ownership and

management in a company.

The company is owned by its shareholders, but they

are not agents of the company, and have no power torepresent the company. They elect directors tomanage the company. These directors are the agentsand sometimes employees of the company.

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Differences In addition, s5 provides that every partner is an agent

of the firm for the purposes of the business of thepartnership.

The members of a limited liability partnership are, inthe absence of any agreement, entitled to take part inthe management of the firm. Further they act asagents of the partnership. s6(1) Limited Liability

Partnerships Act 2000.

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Tax Liability Corporation tax is paid on company profits, income

tax by shareholders on dividend.

Income tax is paid by partners as self-employedschedule D.

LLPs are taxed as partnerships, not companies.

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Shares Shares in companies are freely transferable.

This is certainly true of public listed companies,

but private companies may impose restrictions intheir Articles on the transferability of their shares.

A partner's share in the firm is not freelytransferable. No new partner can be introduced

without the consent of all existing partners. s24Partnership Act l890.

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Limited Liability PartnershipsA member of an LLP may leave either by agreement

with the other members or by giving the othermembers reasonable notice. s43 of the 2000 Act Thefirm is not dissolved on the departure of a member,and thus the member will not be entitled to a share inthe LLPs assets, unless the agreement providesotherwise.

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Formalities To form a companythe requirements regarding

registration must be complied with, together withpayment of the appropriate fees.

The formation of a partnership is far less formal.There are no legal requirements to be compliedwith, unless the Business Names Act l985 applies,the partnership being based on agreementbetween the partners.

The Limited Liability Partnerships Act requiresLLPs to submit an incorporation document and toregister at Companies House. A certificate ofincorporation will be issued.

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Formalities Information about a company's affairs is readily

available at Companies House, or the company's ownregistered office. The publicity given to company

affairs may be regarded as one of the disadvantages ofobtaining corporate status. This also applies to LLPs.

The public have no similar right of access to materialconcerning partnership affairs.

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SharesA company can issue shares of different classes

with different rights attached to the shares.

In the absence of agreement to the contrary, all

partners have equal rights regarding the firm's affairsand share equally in capital and profits, and mustcontribute equally to losses. s24 Partnership Act l890.