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A partnership or a company?

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A Partnership or a Company? People going into business nowadays ought to be aware of how they could share a business with someone else and be covered legally. An insight into the theory is a good introduction. A partnership is a voluntary association of two or more persons who decide to carry on a business together with a purpose of making a profit. In a partnership each partner contributes something in a way of skill, work or financial investment. Each partner has the right to participate in the running of the business and is also an agent of the firm, which means that he has the power to form a business contract at any time. According to the Partnership Act S 4(2): 'a partnership in Scotland is a legal person distinct from the partners of whom it is composed' meaning that it has a separate legal personality from the actual partners. Also this means that it can enter contracts and sue and be sued in the firm's name and that it may own its own property. On the other hand, the Company Act 1985 says: 'companies are corporate bodies formed by registration.' ...read more.


When we speak about limited liability we mean the responsibilities of the owners of a company are restricted to any money that remains unpaid. The partner (investor) is not personally responsible for the debts and obligations of the company in the event that these are not fulfilled. Unlike the partnership firm, members of a limited company have the right to a limited liability. Any individual member's contribution to paying off the debts of the company is limited to the amount of his shares. The limited liability enjoyed by the members of companies is regarded as a major advantage of forming a company rather than entering a partnership. The number of members forming a partnership cannot exceed twenty in total and there must be a minimum of at least two, or else a partnership cannot be formed. However there is an exeption to this rule for firms of solicitors, accountants, stockbrokers and certain other professionals, which in their case they may have over twenty partners. Also it must be mentioned that apart from the normal common law duties of any member (agent) the Partnership Act 1890 provides the following: * The partners must render true accounts to the firm and supply full information on everything affecting the partnership (S28). ...read more.


Some of the consequences of a company being a separate person at law from its members or its directors are the following: * The company enters contracts in its own name. * It may be a debtor and a creditor in its own name and also may be debtor and creditor of its own members. * It can hold both heritable and movable property in its own name. * Constant succession applies to it, unlike the partnership. The legal personality of the company is not affected by changes in the personnel within it. Members can enter or leave the company, die, become insane or go bankrupt, without this having any effect upon the existence as a legal person of the company. In Scotland though not in England, partnership firms have their own legal personality separate from the individual partners. These are the consequences: * Partnerships can contract in their own name. * The firm can hold movable property in its own name. * The firm can be debtor and creditor in its own name, and even of its own partners. * The firm can become bankrupt, and the bankruptcy does not necessarily make the individual partners bankrupt. A personal decision would be made after considering the above theory, the people involved, weighing up the advantages and disadvantages and the type of business being planned. ...read more.

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