1. Words to be remembered.
sole trader ,
partnership
registered company
loan , ,
security of charges
shares
losses ,
borrowing
subsist
stipulation ,
charitable
tort
incur
sue ,
binding
entity ,
defendant
promoter
plaintiff
mandate
credit (to) ,
authorise
repudiate ,
unsound
passing-off
injunction ,
illegal
by implication ,
inter alia (.)
dissolution ,
winding up
assets
lease
writ ,
judgement
deficiency ,
indemnify
to be entitled to
remuneration
expel
fiduciary
undertake , ,
freehold reversion ,
estate
vicariously liable
common law
injury ,
bribe ,
rival
wrongful act
legitimate
illegitimate
Text for reading.
The basic business organisations in England and Wales are the soletrader, the partnership and the registered company. There are advantages and disadvantages associated with these different forms. The most important point of distinction is that, where persons choose to register a company, the company is a juristic or artificial legal person which, with certain obvious exceptions, enjoys the same rights under the law as a natural person. In the case of the sole trader or the partnership, no separate legal person is created. The main consequence is that the registered company provides the protection of liability for its members.
A. The Sole Trader
The proprietor may, of course, employ other people but the responsibility for the success or failure of the enterprise is in the hands of the sole trader who will usually raise the capital of the business by loans from banks against the security of charges on his private property, such as house, life insurance policy or shares. The proprietor retains all the profits but is liable for all the losses up to the full extent of his private fortune and any legal action in respect of the business will be brought against the proprietor.
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The proprietor has great freedom but suffers disadvantages including: (i) limited capital, (ii) limited borrowing, (iii) problems with holidays and sickness, (iv) limited scope for expansion. But these would not necessarily be removed by incorporation.
B. The Partnership
The partnership allows for an increased capital base, improved borrowing and reduces the problems relating to holidays and sickness. The Partnership Act 1890 (PA 1890) defines a partnership as the relation which subsists between persons carrying on a business in common with a view of profit. There must be at least two persons associating for the purposes of carrying on a common business which includes any trade, profession or occupation. The stipulation relating to profit means that the form cannot be used for charitable or non-commercial purposes.
The partnership is not a separate legal person under the law, and partners are jointly liable for the debts and obligations of the partnership without limit, and jointly and independently for torts committed by partners and employees of the firm even for partners who do not play an active part in the management of the business (so-called sleeping partners). Partnership is not suitable for a person who merely wishes to invest money in a business without incurring any further exposure to risk.
The definition of a partnership establishes the essential criteria required for proving the existence of a partnership. These are: (i) the existence of a business; (ii) carried on in common; (iii) with a view of profit. Thus the firm can sue and be sued in its own name under the Rules of the Supreme Court, but any judgement against the partnership is binding on the partners. In addition, the Insolvent Partnerships Order 1994 allows a partnership to be treated as an entity which can enter arrangements with its creditors in the same way as a limited company.
