Legal Issues Relating to the Law of Partnership and Company Law
Table of Contents
A partnership is formed by people with the same goals. It is hard to manage and run a partnership, since it involves individuals with different personalities and nature. In addition, a partnership calls for collective decision-making that involves consultations amongst the members. To consider each member’s opinion and provide a solution that is agreed by all partners is not easy in any contractual agreement, more so, a partnership business. In most cases, there is a conflict of interest within the partnership, since some of the members might have different intentions. Several Acts and laws have been established in a bid to ensure that partnerships exist for the purposes which they were founded for. They are to bear the interests of the business and represent the image of the partnership as stipulated in the law of partnerships (MacMillan & Stone 2012).
Advise to Fred and Anne on All the Legal Issues Relating to the Law of Partnership and Company Law Pertinent to the Case
The partnership is faced with several challenges arising from the misunderstandings of the partnership and company law. Fred and Anne are not loyal to each other and to their business, as well. For instance, the partnership law demands that the partners in a partnership must be loyal to one another and respect the partnership. Fred needs to familiarize himself with partnership laws and regulations in order to cope with the business and succeed in it (Clarkson, Miller, Jentz & Cross, 2008). From the case, it is evident that Fred is not acting in the best interest of the partnership, more so, he makes the business to suffer due to his incompetence. According to Jone (2013), the partners in the business must perform their duties effectively and responsibly. Fred needs to understand the importance of being responsible as a partner in business. A member in business is not allowed to engage in activities that threaten the existence of the business Bhullar v Bhullar (2003). In circumstances where a member acts contrary to the procedures of law, the other members have the right to ask the concerned partner to account for his actions, which may lead to loss of their profits from the business (Pannebakker 2013). It is evident from this case that Fred was not committed to his duties as stipulated in the law of partnerships.
On the other hand, the Scottish partnership law states that the partnership entity is liable for the actions of the members and has to adopt the damages caused (Hannigan, 2012). Based on this provision, Anne must understand that negligence of duty by a member in the partnership entity affects the operations of the business. As anticipated in the company’s act of 2006, partnership involves people with similar objectives and a common goal. As a result, it is assumed that the members act in the interest of the partnership (Hannigan 2012). The law requires that all members are open to each other. With such statement as a reference, Anne should not have established another company without notifying her partner. In addition, the Partnership Act states that if a partner is involved in business activities that influence the partnership without the consent of other members, then they must account for his actions, including sharing of the profits realized in that business (Hannigan 2012). Anne is, therefore, compelled by the law to distribute her earnings from the company to the members of her partnership. Involvement of a member in several partnerships might also compromise the dedication and effectiveness of the member. Partnerships are established and developed on issues of loyalty and trustworthiness (Hannigan 2012). Hence, members are supposed to uphold the required levels of commitment and loyalty for the success of the business. Partnership law requires that individual members need to monitor and oversee the activities of fellow partners to avoid unintended dissolutions of the contract. Legal issues have to be considered in partnership formation in order to guide and regulate the activities of members in a business (Owen 2007).
The partners need to understand the consequences of their actions participating in a partnership. Dissolution of the partnership does not enable a member to evade punishment or avoid being sued for gross misconduct (Davies 2010). For example, in this case, Fred wants the contract to be terminated to avoid being sued by one of the tenants for his negligence of duty. He should know that partnership law provides that partners are individually responsible for the business undertakings of the partnership. Termination of the business does not render the accusations against a member invalid, since the law allows a member of the partnership to be sued individually. Therefore, members have to be keen and careful in their daily duties and activities within the partnership. For this case, Fred should be aware that if Lisa sues the partnership, he will be compelled by the law to pay for the damages even if the partnership is dissolved.
In addition, in Partnership Law Act 2013, an individual’s own assets are exposed. It also enables criminal charges to be launched against the former partners in circumstances whereby the partnership is dissolved. In addition, the Act states that new members of a partnership are liable for the past offences done by the partnership prior to their joining. It is, therefore, important for people to do a thorough investigation before entering already existing businesses. Fred and Anne should know that the law allows the public to launch a legal procedure against a dissolved partnership within a period of five years. In case a fine is imposed, the former members’ assets are exposed. As a result, the law makes Anne and Fred liable for the damages caused by their business.
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Most partnerships do not have written agreements that guide members in their duties and responsibilities. They also lack procedures on how termination of the partnership should be handled. In this case, it is evident that when Fred suddenly notifies Anne of his intentions to withdraw from the business. Partnership law states that every partnership must have written procedures to guide the members on how dissolution of the partnership is approached. The procedures enable the partnership to carry out their duties efficiently and for a long time span. Written agreement can be used as a legal document to determine who is responsible for the damages caused by the business. In current case, Anne knows that it was Fred’s duty to perform repairs but there is no proof of the claim. The claims regarding the responsibility of one of the partners should not arise, since the actions of one member of the partnership represent the intentions of the whole group. The loophole was eliminated in the Partnership Act of 2013 that made it compulsory for all the partnerships to have a written agreement.
On the other hand, lack of understanding of company law if evident when Anne decides to form a private company with her husband as the director and sole shareholder. The Company Act of 2006 provides that a private company must be registered on paper. In addition, the law provides that couples cannot register a private company acting as a sole shareholder and director. It is advised that the couples involve a third party in their company. For instance, Anne could have notified her partner about the formation of Cheap and Cheerful Ltd. The law demands that a person in a partnership has to inform the other members if he/she has an intention to start another business in order to eliminate conflict of interest. Since the law was not observed, Anne’s new company risks to be dissolved if Fred makes a legal challenge.
Fred should consider venturing into a private limited company than partnership. He should look for other people with similar aspirations and form a company to run the business. Formation of a private limited company will eliminate most of the risks that are present in a partnership (Moore 2012). For instance, the company law states that the debts of a private limited company ends with the dissolution of the company. In addition, a private limited company does not expose the personal assets of an individual. A private company is preferred, since in case of damages by the company, dissolution of the company disqualifies all the claims against the firm (Taylor 2014). It is also important that in a company the members enjoy limited liability, since debts can only be cleared by company assets. In such circumstances, members are free to continue with business even after the company faces negative experience.
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Although starting a company is costly and requires much paper work, it is advantageous to the members since a company is a legal entity. The activities and existence of the company are different from the members (French 2013). Hence, people have more confidence in a company than in a partnership. Therefore, a private limited company would be a safer business for Fred. It is evident that Anne’s company is earning them huge profits. A company will steer him to success in flat renovation business. On the other hand, involvement of paper work serves to secure the future of the company. The agreements made before the commencement of business guides the members on what is supposed to be done by the company (Dignam & Lowry 2012). In most cases, companies comply with the provisions of the law and elaborate the procedures. Through the length procedures, a company acquires perpetual succession. As a result, withdrawal of a member from the company does not threaten the existence of the firm.
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The Partnership Act 2013 requires consulting by the members of the business for the betterment and benefit of the partnership (Ervine 2013). The truth is that Anne was aware that her colleague was not performing duties as required but she did not make any effort to save the situation. It is required that partners dialogue on matters affecting the business in order to establish solutions that lead to success (Cahn & Donald 2010). In future, the partners need to be open and discuss issues concerning the partnership. Consultations amongst partners help them avoid misunderstandings and, thus, ensure that the business runs smoothly. Members have to communicate in order to discover the challenges facing them and device methods, which will help deal with the challenges. Therefore, the members have to monitor and consult each other on how to run the business and win the trust of the public (Blackett 2002).
Several amendments were made on the Partnership Act of 1890 (French 2013). The amendments promoted fairness in partnership form of business (Pannebakker 2013). For instance, Lisa has legal grounds to sue the partnership even after the partnership is dissolved as suggested by Fred. The law considers all members in the partnership equal and shares profits and losses equally (Hicks & Goo 2008). Therefore, it is important that Fred and Anne find mutual solution to the current state of the partnership instead of terminating the business, which can cause losing their investments. They should consider Lisa’s issue and compensate her for the damages caused by the partnership. It is also the responsibility of the partnership to ensure that the flat under their management is in good condition and habitable (Roach 2013).
Nevertheless, the law allows a member of the partnership to determine the existence of the business unless there is a written deed (Davies 2008). The termination request presented by Fred is valid only when the circumstances are compromising. He has to wait until the petition proposed by Lisa against the partnership is determined. In addition, the partnership law requires that all the partners should give true records, as well as full information concerning the business to the co-partners. The law is not adhered to in this case, since the partners are carrying out duties independently and without notifying other members (Sealy & Worthington 2010). For example, Fred receives several complaints from the tenants concerning the state of the flats but he does not react to them. In addition, he did notify the co-partners about the reports received from the tenants. In such cases, there is a need for members to share issues of concern, especially from customers. In other case, it will be difficult for the partnership to achieve its goals and objectives.
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Both partners have acted contrary to the law and requirements. There is a need for the partners to gather and re-examine their actions and the law. Through that, the individual persons can venture and succeed in business. In their next endeavors, it is important that written agreements are involved to prevent the occurrence of compromising situations due to the misconduct or negligence of the partners. Partners also need to ensure that they act in the interest of the partnership and uphold the required levels of conduct. The main principles behind partnerships and companies are honesty and trust. All partners should be trustworthy to eliminate suspicion within the partnership. Suspicion negatively influences the progress and success of most partnerships and companies. On the other hand, the members need to observe the laws and regulations established in the business industry. Good conduct and abiding of the rules enhances the growth of the company and efficiency in goods and services delivery. It also helps in minimizing legal actions against the partnership that cost the firm time and resources.