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PARTNERSHIPS: A GUIDE

A partnership is where two or more persons, the partners, enter into business together and share the risks, costs and responsibilities of being in business. A partner can be an individual or another business e.g. a limited company or another partnership.

There are three types of partnership:

  1. Ordinary Partnerships – an ordinary partnership does not have legal existence separate from the partners. Consequently in the eyes of the law it is not a separate legal entity like a company. Unlike the directors of a limited company, partners in an ordinary partnership have personal liability for all of the debts of the partnership.

In an ordinary partnership if the partnership has debts, the partners are jointly liable for the debt owed and so are equally responsible for paying off the whole debt. Creditors can claim a partner’s personal assets to pay off any debts, even those debts caused by other partners. Therefore, in an ordinary partnership the partners’ personal assets are not protected in the event that the business fails.

  1. Limited Partnerships – a limited partnership is made up of a mixture of ordinary partners and limited partners.

In a limited partnership ordinary partners are jointly liable for any debts owed by the partnership and so are equally responsible for paying off the whole debt. However a limited partner’s liability is limited to the amount of money they have invested in the business and to any personal guarantees they have given to raise finance.

  1. Limited Liability Partnerships (LLPs) – a LLP is a hybrid between a company and a partnership in that LLPs must register with Companies House, send Companies House an annual return and file accounts with Companies House.

LLPs have the advantage of limited liability, partners are not personally liable for the debts of the partnership. In a LLP a partner’s liability is limited to the amount of money they have invested in the business and to any personal guarantees they have given. Thus partners have some protection if the business fails since the partners’ personal assets are protected to a certain extent.

A Partnership Agreement is a contract between the partners of a business.

There is no legal requirement to enter into a partnership agreement as the law will automatically impose a default set of rights and obligations to govern the partnership and the relationship between the partners if they don’t. Consequently partnership agreements are voluntary; they set out the rights and obligations of the partners and regulate the relationship between the partners with the aim of protecting the partners’ investment in the business.

In order to avoid costly disputes we recommend to enter into a written partnership agreement as it lets the partners know where they stand in relation to each other and the business. Also, since in the absence of a written partnership agreement the law will impose a default set of rights and obligations on the partners, having a written partnership agreement in place gives the partners the opportunity to vary or exclude the default position.

A partnership agreement sets out detailed and practical rules in respect of the partnership and its partners. Generally the agreement will:

  • regulate the partners’ investment in the business;
  • protect the partners’ interests and secure the future of the business;
  • set out whether property used by the partnership belongs to the partnership or to individual partners;
  • provide a written structure for the business clearly setting out each partner’s responsibilities, rights, profit/liability sharing, rules relating to business entry and exit, and also the terms on which disputes are resolved and the partnership can be terminated;
  • set out how the partnership is going to be run;
  • regulate how important partnership decisions are to be made, and
  • help avoid costly misunderstandings and conflicts.

A partnership agreement will make the day-to-day operation of the partnership smoother and prevent problems from escalating into full-blown crises. It formalises the partnership arrangements allowing the partners to agree on how to handle particular situations before they arise. A badly drafted or non-existent partnership agreement may expose partners to a range of potential issues, leading to an unsuitable business structure and ultimately to partnership dissolution.

The Legal Stop has a several partnership agreements each fully comprehensive and specifically drafted for the particular type of partnership that you are intending to establish, whether an ordinary, limited or limited liability partnership. For more information please visit our website www.thelegalstop.co.uk.

Shareholders’ Agreements

A shareholders’ agreement is a legally binding contract between the shareholders of a company; it regulates the relationship between the shareholders in order to protect the interests of the individual shareholders as and against each other. A shareholder agreement is an essential document for any company to have especially if there is more than one shareholder. It provides protection for the shareholders and establishes a fair relationship between them. Generally a shareholder agreement sets out the rights and obligations of the shareholders, regulates the sale of shares in the company, details how the company is going to be run and how decisions are to be made.

Here are some uses of shareholders’ agreements:

  • To give to a shareholder rights which would otherwise be unenforceable if inserted in the company’s Articles e.g. personal rights such as a right to be appointed as a professional adviser to the company.
  • To regulate the relationships between shareholders which have nothing to do with the administration of the company, e.g. if one or more shareholders are investing in the company.
  • To protect minority shareholders’ rights e.g. by giving them a power of veto which they would not otherwise enjoy under Company Law.
  • To preserve confidentiality. Articles of Association are open to public inspection, thus it may be more appropriate in some circumstances to deal with matters in a shareholders’ agreement for reasons of confidentiality.
  • To provide a way to transfer shares in the business and help run the business smoothly in the face of future events such as death, disability or retirement of a shareholder. Shareholders’ agreements generally establish a purchaser for the shares of the deceased or existing shareholder, a formula for determining the purchase price of the shares, and a method for funding the purchase.

In the absence of a shareholders’ Agreement any disputes between shareholders will have to be settled by what is contained within the Articles of Association, however the Articles generally do not offer shareholders full protection.

The Articles of Association of a company are the rules governing its internal management and administration. The Articles are governed by Company Law and are binding on all the members of the company. A shareholders’ agreement is an agreement between the members of a private limited company which is governed by the normal law of contract. Some matters covered in a shareholders’ agreement may equally be incorporated in the Articles of Association for example pre-emption rights. However, bearing in mind that the Articles of Association are open to public inspection, it may be more appropriate in some circumstances to deal with matters in a shareholders’ agreement for reasons of confidentiality. Furthermore, shareholders’ agreements are often used to give protection to shareholders because they provide for what happens if ‘things go wrong’, if there is a falling out between the shareholders. Also, a shareholders’ agreement contains detailed provisions to cover specific issues and it gives a contractual remedy if its terms are broken.

There are also some drawbacks with shareholder’s agreements. There may be complications when a member who is signatory to a shareholders’ agreement transfers shares since the new member must agree to be bound by the shareholders’ agreement and the old member released from it. Also Shareholders’ agreements can become unwieldy if the number of shareholders increases substantially.

Clauses commonly included in shareholders’ agreements are:

Provisions covering initial funding and further financing of the company. Warranties and indemnities from existing shareholders to a new shareholder/investor. The appointment of auditors and bankers. Provisions governing the application of funds invested. Provisions governing any personal guarantees given by a shareholder to third parties dealing with the company. Dividend policies. Rights of first refusal in the event of a shareholder wishing to transfer his or her shares (pre-emption rights). Compulsory transfer or option arrangements. Covenants not to compete with the company nor to solicit its customers, suppliers, officers or employees. Undertakings of confidentiality. Provisions for protection of minority shareholders (e.g. rights of veto). Mechanisms for dealing with deadlock.

Please note that this list is not an exhaustive. Shareholders’ agreements can take a variety of forms and can serve a variety of purposes, they can range from the extremely simple to the extremely complicated.

We have a large number of documents including shareholders’ agreements.

Our shareholders agreements are fully comprehensive and contain detailed and practical clauses, including clauses dealing with:

  • transfer of shares in the company,
  • pre-emption rights on a transfer of shares,
  • deadlock which determines how disagreements on key issues are to be resolved,
  • drag-along enabling a majority shareholder to force a minority shareholder to join in the sale of a company,
  • tag-along protecting the interests of minority shareholders where the majority shareholder is selling out, thus allowing the minority shareholders to jump on the back of the buy-out,
  • confidentiality, non-compete, non-solicitation and non-poaching to safeguard the interests of the company.

 For more information click here:http://www.thelegalstop.co.uk/Corporate.html

 All business relationships start out with good intentions, however, they all have the capacity to go horribly wrong. Disputes can arise between shareholders for many reasons and shareholder agreements are supposed to take account of such eventualities.

We strongly recommend that all companies with more than one shareholder enter into a shareholders’ agreement since it provides a piece of mind and lets everyone know where they stand so to avoid costly disputes in the event of a falling out between shareholders. Also, venture capitalists usually require a shareholders’ agreement as a condition of funding.

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Waste (England and Wales) Regulations 2011

The Waste (England and Wales) Regulations 2011 came into force on 29 March 2011 and implemented the revised EU Waste Framework Directive 2008/98, which sets requirements for the collection, transport, recovery and disposal of waste.

The Waste (England and Wales) Regulations 2011 affect all types of businesses that deal with waste, particularly affect businesses that:

  • produce waste
  • import or export waste
  • carry or transport waste
  • keep or store waste
  • treat waste
  • dispose of waste
  • operate as waste brokers or dealers.

In summary the Regulations:

  • require businesses to confirm that they have applied the waste management hierarchy when transferring waste and to include a declaration on their waste transfer note or consignment note;
  • introduce a two-tier system for waste carrier and broker registration, which includes those who carry their own waste, and introduces a new concept of a waste dealer;
  • make amendments to hazardous waste controls and definition;
  • exclude some categories of waste from waste controls, notably animal by-products whilst include a small number of radioactive waste materials.

The waste management hierarchy sets out, in order of priority, the options businesses should consider when dealing with waste and it clearly places more emphasis on waste prevention:

  • prevention
  • preparing for re-use
  • recycling
  • recovery
  • disposal

From 28 September 2011, whenever you pass waste on to someone else, you will have to declare on the waste transfer note, or consignment note for hazardous waste, that you have applied the waste management hierarchy.

The new Regulations also introduce a two tier system for waste carrier and broker registration, plus the new concept of a waste dealer.

If your business carries, brokers or deals in other people’s controlled waste then you need to register as an upper tier carrier or broker, unless you are in one of the lower tier categories listed below. Controlled waste includes commercial, industrial, household and hazardous waste.

You also need to register as an upper tier carrier if you carry your own construction or demolition waste.

An organisation can register as a lower tier carrier only if it carries brokers or deals in:

  • animal by-products
  • waste from mines and quarries
  • waste from agricultural premises.

In addition, a waste collection, disposal or regulation authority and a charity or voluntary organisation that carries, brokers or deals in other people’s waste are now required to register as a lower tier carrier even if they were previously exempt from waste carrier registration.

From December 2013 organisations that normally and regularly carry controlled waste produced by their own business will also need to register as a lower tier carrier

Registration as a lower tier carrier, broker or dealer is free and lasts indefinitely, unless it is revoked or withdrawn.

Furthermore, the new Regulations make amendments to the hazardous waste controls and introduce a new category of ‘sensitising’.

Some categories of waste are now excluded from waste controls.

Waste controls no longer apply to activities dealing only with excluded wastes. For example, land spreading animal by-products are no longer subject to waste controls.

The Regulations place a greater burden on organisations as to how they manage their waste and encourage organisations to work towards achieving a more sustainable environment.

Businesses should review their waste management policies and put in place additional procedures to ensure compliance with these Regulations.

New Cookie Law

On 26th May 2011 the Privacy and Electronic Communications (EC Directive) (Amendment) Regulations 2011 (UK Regulations) came into force in the UK. The UK Regulations relate to the use of cookies.

The new cookie law aims to protect personal data, privacy and other rights of website users.

Cookies are text files on web browsers, information that can be used for authentication, identification of a user session, for user’s preferences shopping habits and for tracking browsing activities.

Under the new law if your website uses cookies then you are required to:

  • inform users about cookies and what you are going to use their information for; and
  • obtain users’ consent to the placing of the cookies.

In other words, a website owner must not store information or gain access to information stored in the computer of a user unless the user “is provided with clear and comprehensive information about the purposes of the storage of, or access to, that information” and “has given his or her consent”.

The type of consent needed to satisfy the requirements of the UK Regulations is unclear; also there are conflicting opinions on how the consent requirement will operate in practice. The Information Commissioner’s Office (ICO) published guidance that offers advice on when and how the consent may be given. The guidance states:

“You need to provide information about cookies and obtain consent before a cookie is set for the first time.  Provided you get consent at that point you do not need to do so again for the same person each time you use the same cookie (for the same purpose) in future”.

“At present, most browser settings are not sophisticated enough to allow you to assume that the user has given consent to allow your website to set a cookie. Also, not everyone who visits your site will do so using a browser.  They may, for example, have used an application on their mobile device.  So, for now we are advising organisations which use cookies or other means of storing information on a user’s equipment that they have to gain consent some other way”.

A way to provide website users with information, thus complying with the requirement of the UK Regulations, is to provide them with a cookies policy or a privacy policy stating the types of cookies used, the type of information collected and what the information will be used for.

If your website uses cookies then the first step would be for you to have an up to date cookies or privacy policy. The Legal Stop has provided a fully comprehensive Website Cookies Policy Template which can be freely downloaded by clicking on the following link:

http://www.thelegalstop.co.uk/free_legaldocuments.html

The consent requirement is more difficult to satisfy. The ICO guidance suggests a number of ways to obtain consent. Consent could be obtained via:

  • use of pop ups asking for consent;
  • terms and conditions of use which users agree to upon registering on a website;
  • a text in a header or footer of webpage;
  • inclusion in preferences that users set when using a website; and
  • a hybrid of the above methods.

Generally, website owners should consider what would work for them by looking at their business and how they use their website. Thus, much depends upon how your website uses cookies.  The more privacy intrusive your activity, the more you will need to do to get the required consent.

Under the new law, the only exemption to the consent requirement is where the cookie is strictly necessary for a service requested by the user. If a cookie forms an integral part of a website’s functionality for example a shopping basket or the storage of a user’s personal preferences, then there is no need to obtain user’s consent.

The new cookie law carries a maximum fine of £500,000 for serious breaches. The ICO confirmed that until May 2012 it will not take any enforcement action against companies or website owners that are trying to find solutions to the problem of obtaining consent. From May 2012, the ICO will decide on case by case basis whether enforcement action is appropriate.

WHAT WEBSITE OWNERS SHOULD DO TO COMPLY WITH THE NEW COOKIE LAW?                                                                

Owners of websites that use cookies are required to take three steps: 

  1. Check what type of cookies and similar technologies you use and how you use them.
  2. Assess how intrusive your use of cookies is.
  3. Decide what solution to obtain consent will be best in your circumstances.

Introduction to the Agency Workers Regulations 2010

The Agency Workers Regulations 2010 is due to come into force on 1 October 2011. The Regulations have been introduced to ensure fair treatment of agency and temporary workers providing them with similar employment rights as permanent workers.

The Regulations set out criteria used to determine if the agency and temporary worker falls within the scope of the Regulations.

Characteristics of an Agency Worker (AW):

  • The AW works for a variety of hirers on different assignments but is paid by the The Worker Agency (TWA) who deducts tax and NICs (National Insurance contributions);
  • AW has a contract with the TWA but works under the direction and supervision of the hirer;
  • Time sheets are given to the TWA who pays the AW for the hours worked;
  • If an AW is on sick leave, the TWA pays the Statutory Sick Pay;
  • The TWA pays holiday pay when statutory annual leave is taken.

Workers outside the scope of the Regulations:

  • The “employment agency” introduces an individual to an employer for a directly employed role paid by the employer;
  • The contract of employment  is agreed between the worker and employer and is for a casual or fixed period;
  • There is no ongoing contractual relationship between the employment agency and the worker.

The equal treatment entitlements relate to pay and other basic working conditions (annual leave, rest breaks etc.) and come into effect after an agency worker completes a 12 weeks qualifying period in the same job with the same hirer.

The equal treatment entitlements include the same basic rights regarding:

  • Pay
  • Benefits
  • Duration of work
  • Night work
  • Rest breaks
  • Annual leave

Thus, the changes introduced by the Agency Workers Regulations mean that agency workers after a 12 week qualifying period in the same job role with the same hirer will enjoy the same rights in relation to basic terms and conditions as permanent workers.

If you are an employer and hire temporary agency workers through a temporary work agency, you should provide your agency with up to date information on your terms and conditions so that they can ensure that the agency worker receives the correct equal treatment as if they had been recruited directly, after 12 weeks in the same job. You are responsible for ensuring that all agency workers can access your facilities from the first day of their assignment with you.

If you are a ‘temp’ agency worker, from 1 October 2011 after you have been working in the same job for 12 weeks you will qualify for equal treatment in respect of pay and basic working conditions. You can accumulate these weeks even if you only work a few hours a week.

If you are a temporary work agency and are involved in the supply of temporary agency workers, you need to ask the hirer for information about pay and basic working conditions when it is clear that the agency worker will be in the same job with the same hirer for more than 12 weeks.

 

Agency Workers Regulations 2010