SEMESTER 1, 2009/2010

QUESTION 2
a) Discuss three differences between a company and a partnership.
Company and partnerships differ in their structures, with company
being more complex and including more people in the decision-making
process. A company is an independent legal entity owned by shareholders,
in which the shareholders decide on how the company is run and who
manages it. A partnership is a business in which two or more individuals
share ownership. In general partnerships, all management duties,
expenses, liability and profits are shared between two or more owners.
The second aspect is start-up cost. Company are more expensive and
complicated to form than partnerships. Forming a company includes a lot
of administrative fees, and complex tax and legal requirements. Company
must file articles of incorporation, and obtain state and local licenses and
permits. Corporations often hire lawyers for help with the process.
Partnerships are less costly and simpler to form. Partners must register the
business with the state and obtain local or state business licenses and
permits. The last aspect of difference is liability. For partnerships, the
general partners are held liable for all company debts and legal
responsibilities. General partners' assets may be taken to pay company
debts. Partnerships often include partnership agreements stating exactly
what percent of the company each general partner is responsible for and
the percent can vary from partner to partner. Company, on the other hand,
do not hold individuals liable for the company's debt or legal obligations.
The company is considered a separate entity and therefore the company
itself is responsible for assuming all debts and legal fees, and the
shareholders are not at risk of losing personal assets.

b) Explain the fiduciary duties of partners to the firm.

The first duty is duty of good faith and fair dealing. Under this duty, partners
must act with honesty and show good faith and fairness to each other in their
partnership interactions. This continuing duty arises starting with the formation of the
partnership. It continues through the partnership's on-going daily operations and
ultimately through the partnership's sale or dissolution. This obligation underlies the
performance of all the other fiduciary duties in a partnership. The next duty of partner
towards the firm is loyalty. The duty of loyalty requires relevant partners to place the
success and interests of their partnership above their own personal or other business
interests. Impacted partners should avoid any conflicts of interest between their
partnership duties and their other personal and business activities. As part of the duty
of loyalty, one must properly hold partnership property in trust for the benefit of the
partners and not use it for ones own personal advantage. For example, a general

partnership may own an office building, but a general partner should not dispose of
that partnership asset for his or her individual economic gain to the detriment of the
partnership. In some instances, you may be allowed to obtain an individual benefit
from partnership assets after full disclosure to and prior approval from the other
partners. The last duty is disclosure. Partners involved in managing partnership affairs
are expected to comply with a duty of disclosure. In order to make informed
decisions, participating partners should make full disclosures about reasonably known
risks and potential benefits of a particular action. These disclosures relate to all
partnership activities, including partnership assets, operations, finances, debt, and
contracts. Disclosure is particularly important in instances involving the sale of the
business or potential conflicts of interests in business dealings. As part of their duty of
disclosure, relevant partners should disclose any conflict of interest they may have
relative to any partnership dealings or decisions.

c) Explain the statutory duties of directors to the company

Directors need to be aware that they are personally subject to statutory duties
in their capacity as directors of a company. In addition the company as a separate
legal entity is subject to statutory controls and the directors are responsible for
ensuring that the company complies with such statutory controls. The Companies Act
2006 codified certain common law and equitable duties of directors for the first time.
The Act sets out seven general duties of directors which are:
1. To act within powers in accordance with the companys constitution and to use
those powers only for the purposes for which they were conferred
2. To promote the success of the company for the benefit of its members
3. To exercise independent judgement
4. To exercise reasonable care, skill and diligence
5. To avoid conflicts of interest
6. Not to accept benefits from third parties
7. To declare an interest in a proposed transaction or arrangement