Business Organizations

Business Organization

Unincorporated Incorporated

{Has No separate legal Entity

from its Participants} {A legal entity in its own right}
liability

Sole trader private

partnership public
Ltd,Co.
Ltd,Co.
Partnership
Limited
 The distinction between registered limited
com
Registered Limited General Partnership Limited Liability
Company Partnership (LLP)
It is a legal entity separate
It is not a legal entity It is a legal entity separate
from its members separate from its members from its members
Members’ liability is Members’ liability is Members’ liability is
limited unlimited limited
Directors manage the Partners have a right to Partners have a right to
company affairs manage the partnership’s manage the partnership’s
affairs affairs
Directors are the agents of Partners are the agents of Members are the agents of
the company the Partnership the Partnership
Members can transfer their Partners cannot transfer Members cannot transfer
shares to others their interests to others their interests to others
Company assets belong to The partners own the LLP assets belong to the
the company assets jointly LLP
Documents must be Can be created without Documents must be
registered with Registrar of formalities registered with Registrar of
Companies Companies

Annual returns and Affairs are completely Annual returns and

accounts must be private accounts must be
registered and are open to registered and are open to
inspection by the public inspection by the public

Company pays corporation Receive a share of the Receive a share of the

tax profits and pay income tax profits and pay income tax
on the share received on the share received

Perpetual succession. Dissolved when a partner Change in membership

Change in membership leaves does not alter its existence
does not alter its existence
 Partnerships

• A partnership is an agreement between two or more persons to carry on a

business together with the intention of making a profit.
• A general partnership is an unincorporated business where the partners have
unlimited liability for the debts of the business.
• - Equity partner , who takes a share of the
• profits after all expenses are met
• - Salaried partner, who receives a salary rather than
• a share of the profits
• - Sleeping partner, who invests capital in the firm but
• take no part in the running of the business
 Duties of Partners

• Partners have duties and rights under the Partnership Act.

Duties of Partners are;
 General duty to act honestly and in good faith on each other
 Duty of disclosure
 Duty to account and
 Duty not to compete
 Rights of Partners
• Rights of Partners set out in Partnership Act are;
 To share equally in the capital and profits of the business(also to contribute equally
to losses)
 To be indemnified by the firm for any liabilities incurred or payments made in the
course of the firm’s business
 To take part in the management of the business
 No person can be introduced to a partnership without the consent of all the
existing partners
 No changes can be made to the nature of the partnership business unless all
partners agree, but ordinary matters connected with the partnership can be
decided by a majority of partners
 The firm’s books must be kept at the firm’s place of business or principal place of
business if there is more than one , and every partner must have access to the
books to inspect and copy any of them
 Dissolution of Partnership
• A Partnership may be brought to an end either

1) By agreement

2) Automatically under the Partnership Act or

3)By a court order

1) As a partnership is a contract, it is possible that the partnership agreement itself

expressly states how the partnership can be terminated
 Dissolution of Partnership

2) The grounds which automatic dissolution of

a partnership under the Partnership Act are;

 The expiry of a fixed term

 The expiry of the particular purpose

 By giving notice

 The death or bankruptcy of any partner

 A partner’s share in the partnership becomes subject to a charge

 Where the continuation of the partnership is illegal

 Dissolution of Partnership

3) A court may order the dissolution of

a partnership on the application by a

partner in the following circumstances;

 A partner becomes mentally ill or permanently incapacitated for some other
reason
 A partner’s conduct prejudicially affects the carrying on of the business

 A partner persistently breaches the partnership agreement

 The business can only be carried on at a loss

 It is just and equitable to dissolve the partnership

• When a partnership is dissolved all the partnership assets are gathered and
payments are made in the following order;
 All debts to outsiders

 Loans made to the partnership by the partners

 The individual partners will be repaid the capital sum they put into the partnership

 The remaining sums are paid to the partners in the same proportion as they
shared in the profits