Legally the brothers could now be a partnership emphasised by Jessel MR in Pooley v Driver [1876] that a labour contribution may be enough to found a partnership.

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Louise Goldstein        

MG 2080A Company Law

A)        While Stan Wicks worked on his own as jobbing builder he would have been classed as a sole trader. As the business grew in size he took his brother on. Legally the brothers could now be a partnership emphasised by Jessel MR in Pooley v Driver [1876] that a labour contribution may be enough to found a partnership. Classed as “The relationship, which subsists between persons carrying on in business in common with a view to profit”, sec 1 Partnership Act 1890. The Act defines a partnership as ‘a relationship’ that is to say its not a legal person in its own right.

A firms name is merely an alias for its members jointly, so any contract entered into in the name of the firm would be with the partners jointly. The rules of the Supreme Court allow firms to sue and be sued in the firms name but unlimited liability is with the partners jointly and severally.

In a partnership you have unlimited liability i.e. all the assets of Stan and Bill, whether used for the purpose of the business or not, are legally available to the firm’s creditor’s. Also any creditor to Stan or Bill for debts unrelated with the partnership can seize partnership assets to the degree of their share in the firm. Legally creditors of the firm can sue both Stan and Bill or either for the debt to the full extent of their personal assets.

There are no particular legal rules about forming a partnership you just find the capital, get any relevant licences and planning permission needed for the type of business you are in. By definition a partnership needs a minimum of two people and a maximum of twenty. It is probably wise to have a Deed of Partnership written up and signed by Bill and Stan in order to prevent future disagreements. However there is no legal necessity for this. All the law requires is an agreement, which can be oral, implied, written or even, arise by estoppel, sec 14 of the Partnership Act.

As it is not stated that any other agreement has been reached Stan and Bill would share equally in capital invested, own all the assets and profits and owe all the debts. They would both have a right to inspect the firm’s books. They would be entitled to indemnity for expenses incurred on the firm’s business. Neither partner is entitled to pay for work. They must keep each other fully informed of all material facts. Neither of them should make a secret profit, nor compete with the firm. There should be no change to the partnership unless both of them consent.

The legal responsibility for all contractual and tortious liability for actions linked with the business is on the partners. No one other than a partner can make contracts on behalf of the business although they may act through agents. According to Sec 5 of the Partnership Act 1890 Bill and Stan are agents of the firm and of each other, for the purpose of the business; and the acts of Bill and Stan that is carrying on in the usual business way of the kind carried on by the partnership, binds the firm and its partners. Any agreements between the partners inter se, for example on roles within the firm or profit sharing ratios, aren’t binding on third parties who are oblivious to them.

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They don’t need to reveal the business’s financial situation to anyone apart from the Inland Revenue for personal tax purposes and Customs and Excise for V.A.T. for turnover in excess of £49,000 (April 1998).                                

B)        The most important consideration on forming a company is the protection of limited liability. As the corporation is a legal person in its own right its distinct and separate from its members or holder Salomon v Salomon & Co [1987]. Only the corporation’s assets may be used to pay ...

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