Essential points 353Tax
There can be tax advantages in trading as a company and taking dividends from the com-
pany, rather than taking a salary as a director. It is beyond the scope of this book to consider
these advantages in any detail. In recent years HMRC have very often argued that persons
who supply services through a company to one other person are in fact employees and
should be taxed accordingly. The fact that HMRC takes this line, and that the taxpayers
vigorously oppose it, indicates that tax advantages can be enjoyed by trading as a company.
Partners and LLP members do not receive dividends. They receive a share of the profits and
pay income tax on the share received.
Perpetual succession
Companies and LLPs continue in existence until they are wound up. The death of a share-
holder or even of all the shareholders will not end the company. This can be useful when a
family company is passed down from one generation to the next. LLPs stay in existence
indefinitely in the same way as companies.
In contrast, the death of a partner will end the partnership. However, the partnership
deed might well provide that the surviving partners should carry on the business (in which
case they must pay an appropriate amount to the estate of the deceased partner). If the
surviving partners do carry the business on, then the dissolution of the partnership will
amount only to a technical dissolution.
Sole traders
By definition, a sole trader is in business alone. However, a sole trader should consider the
benefits of forming a company. In effect, he or she can trade as a company and still be
in business on his or her own. This is especially true now that it is possible to have private
limited companies with only one shareholder and one director.
Essential points
n Partnership is the relationship which exists between persons who carry on a business
with each other with the intention of making a profit.
n A partnership does not have a separate legal identity of its own. It is merely a relation-
ship between the partners.
n A person who is not a partner but who allows outsiders to believe that he or she is a
partner can become liable to those outsiders as if he or she really was a partner.
n A partnership agreement can be altered by the express or implied consent of all of the
partners.
n The court will order a partnership to be wound up if it can only be carried on at a
loss.
n The partners themselves may wind up a partnership. Any partner can dissolve the
partnership by giving notice unless the partnership was for a fixed time.
n A partnership for a fixed time will be dissolved when the time has expired, or if all the
partners agree to terminate it before the time has expired.