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trader, the partnership and the company. However, under the LIMITED LIABILITY PARTNERSHIPS ACT 2000 a new type of business unit, a limited liability partnership (LLP) can be formed which is a cross between a company and a partnership. This Act became law in April 2001.
Case law
A company has separate legal personality from its
members. SALOMON V SALOMON & CO. [l897] LEE V LEE'S AIR FARM LTD. [l961] MACAURA V NORTHERN INSURANCE [l925]
Essential Differences
A partnership is an unincorporated association, having
no separate legal personality from the partners. It may have a firm's name but this does not give it corporate status, and the partners are fully responsible for the acts of the firm. Limited Liability Partnerships are corporate bodies having a separate legal personality from their members
Limited Liability
The members of a company may have limited
liability, i.e., the liability of the shareholders is limited to their fully paid shares. The company's debts belong to the company, not the shareholders, even if the company is insolvent. Partners usually have unlimited liability, they are fully responsible for all partnership debts.
have limited liability, although they will be personally liable to third parties for their own wrongful acts and might be liable in the event of insolvency.
Perpetual Succession
A company has perpetual succession and is not
affected by the death of shareholders, or any change in the 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.
death, etc. of a member. His share may be inherited, but the beneficiary will not be able to take part in the management of the firm, being entitled only to a share in the profits.
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 to represent the company. They elect directors to manage the company. These directors are the agents and sometimes employees of the company.
Small Companies
In fact English company law is currently designed to
encompass large organisations, but many small companies are run as quasi-partnerships with all members also acting as directors, thus in such cases ownership and management would not be in separate hands.
Partnership
In a partnership there is unity of ownership and
control. All partners have a right of management. Day-to-day matters may be decided by a majority vote, but any fundamental change requires the consent of all partners. s24 Partnership Act l890.
Differences
In addition, s5 provides that every partner is an agent
of the firm for the purposes of the business of the partnership. The members of a limited liability partnership are, in the absence of any agreement, entitled to take part in the management of the firm. Further they act as agents of the partnership. s6(1) Limited Liability Partnerships Act 2000.
Company Accounts
Company accounts have to be laid before the
company in general meeting, published and audited. They are thus open to public inspection, although small and medium companies are entitled to certain accounting exemptions, and private companies can benefit from the deregulation provisions contained in the l989 Companies Act
Partnerships
Partnership accounts are never subject to public scrutiny, nor do they need to be audited.
However, Limited Liability Partnership accounts are subject to the same legal requirements as companies and thus accounts and auditors reports will have to be sent annually to Companies
Tax Liability
Corporation tax is paid on company profits, income
tax by shareholders on dividend. Income tax is paid by partners as self-employed schedule D. LLPs are taxed as partnerships, not companies.
Shares
Shares in companies are freely transferable. This is certainly true of public listed companies, but private companies may impose restrictions in their Articles on the transferability of their shares.
A partner's share in the firm is not freely transferable. No new partner can be introduced without the consent of all existing partners. s24
with the other members or by giving the other members reasonable notice. s43 of the 2000 Act The firm is not dissolved on the departure of a member, and thus the member will not be entitled to a share in the LLPs assets, unless the agreement provides otherwise.
No of Members
. There is no limit to the number of members in a
company, nor an LLP, but, except in certain professional partnerships, (e.g., solicitors, accountants. stockbrokers, estate agents) the maximum number of partners is 20.
Formalities
To form a company the requirements regarding registration must be complied with, together with payment of the appropriate fees. The formation of a partnership is far less formal. There are no legal requirements to be complied with, unless the Business Names Act l985 applies, the partnership being based on agreement between the partners. The Limited Liability Partnerships Act requires LLPs to submit an incorporation document and to register at Companies House. A certificate of incorporation will be issued.
Formalities
During the lifetime of a company there are many
administrative formalities to be complied with, e.g., the keeping of various registers of shareholders, directors, charges, etc. Certain information has to be submitted to the Registrar, e.g., change of articles or memorandum, increase in capital, copies of special resolutions, etc.
Formalities
There are no similar requirements for partnerships, except those affecting any business, e.g., registration for VAT, return of profits for income tax purposes. Limited Liability Partnerships are required to submit an Annual Return and accounts to Companies House and to keep accounts in accordance with Company legislation and daily records disclosing the financial position of the firm.
Formalities
Information about a company's affairs is readily
available at Companies House, or the company's own registered office. The publicity given to company affairs may be regarded as one of the disadvantages of obtaining corporate status. This also applies to LLPs. The public have no similar right of access to material concerning partnership affairs.
Shares
A 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 affairs and share equally in capital and profits, and must contribute equally to losses. s24 Partnership Act l890.