contract, verbal or written, between them. Partnership
by estoppel, as it is called, is more fully explained in
Chapter 5.
The liability of the partners is unlimited, so if the firm
cannot pay its debts, each general or equity partner is
liable to pay them with a right to ask for a contribution
from the others.
2 A limited partnership
It is possible to form a limited partnership as a business
vehicle. So long as one partner has full liability where the
firm cannot pay a debt, the others may have limited liab-
ility. This means that if the business falls on hard times,
they may lose the capital they invested in it but will have
no further liability as the unlimited partner has. These
partnerships are not commonly used in the generality
of business organisations. They are used for collective
investment schemes such as unit trusts. The firm man-
ages the scheme and the investments. Authorisation
under the Financial Services and Market Act 2000 by the
Financial Services Authority is required by those who act
as managers of the scheme. The limited partners cannot
take part in management. If they do, they become per-
sonally liable for debts incurred by the firm during their
period of management.
3 A limited liability partnership
This is the most recently created form of business owner-
ship: the limited liability partnership or LLP. It is regis-
tered with the Registrar of Companies and owns the
assets of the business as a juristic person separate from
the members, as they are called. The LLP is fully liable for
its debts but there is no personal liability in the members
as is the case with the unlimited partnership. If the LLP
becomes insolvent, the members may well lose the cap-
ital they contributed but beyond this have no duty to
contribute to the assets of the LLP if on winding-up
there is a shortfall. They can agree to make such a con-
tribution in the LLP agreement but are not forced by law
to do so. However, the court has a discretion to order
repayment of any withdrawals made by a member of
an LLP within the two years prior to winding-up if the
member knew or ought to have concluded that the with-
drawal would increase the risk of subsequent insolvency.
Experience of the LLP shows that up to now the relevant
legislation, i.e. the Limited Liability Partnerships Act
2000, has been used mainly by partnerships of solicitors
and accountants and other professionals where personal
liability, e.g. for negligence claims, can be high if the
firm cannot meet the damages.
Detailed provisions contained in the Limited Liabil-
ity Partnerships Act 2000 and regulations were based
largely on the Companies 1985 Act. The government
consulted in November 2007 on the application of the
Companies Act 2006 to Limited Liability Partnerships
(LLPs). The intention was to ensure that LLPs remain
an attractive business medium for businesses, as it was
envisaged that LLPs should remain distinct from com-
panies. Accordingly, it is important to bring the LLP
Regulations up to date with the 2006 Act. The provisions
should achieve the correct balance between the interests
of those who want to become LLPs and those who are
dealing with LLPs. Regulations on accounts and audits
provisions are to be published ahead of other provisions.
These came into effect for LLPs in Great Britain and
Northern Ireland on 1 October 2008, for financial years
beginning on or after that date.
The remaining provisions will be made based on the
2006 Act and will be published in due course. These pro-
visions are due to come into effect in October 2009.The company
A business may be incorporated as a registered com-
pany. This is created by following a registration pro-
cedure carried out through the Registrar of Companies
in Cardiff. Companies House is an Executive Agency of
the Department for Business, Enterprise & Regulatory
Reform (BERR).
A registered company is commonly formed by two or
more people who become its shareholders. Directors
must be appointed to manage the company and act as its
agents. Under the Companies Act 2006 a private com-
pany need not appoint a company secretary but may do
so if it wishes. In a private company it is common for the
appointment to be made either from the shareholders
or from among those advising the business, such as
an accountant (provided he is not also the company’s
auditor, who cannot hold an office of profit within the
company) or solicitor. Since the implementation of an
EC directive by the Companies (Single Member Private
Limited Companies) Regulations 1992, SI 1992/1699), a
private company limited by shares or guarantee may be
formed with one member only or allow its membership
to fall to one. This and its ramifications are explained
in Chapter 6. The relevant provisions are now con-
tained in the Companies Act 2006.
If the business is large enough and the company is a
public limited company, it must under the Companies
Act 2006 appoint a company secretary, normally afterPart 2Business organisations