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Glossary

Term Description
Arbitration Arbitration is an alternative method of resolving disputes without the need to go to court. The parties agree, when they enter into an agreement (in the case of partnership a Partnership Agreement) that they will use arbitration to resolve disputes.

An arbitrator is appointed under the terms of the agreement to decide an outcome of the dispute. The decision of the arbitration is binding on the parties.

The Arbitration Act 1996 sets out rules for the conduct of the artbitration.

Ralli’s expert solicitors have experience of dealing with arbitration and representing parties in arbitrations.

Capital Account The partners in a partnership or members of an LLP have both Capital and Current Accounts.

The Capital Account represents their share of the equity of the business and is made up of money (or other assets) they have introduced into the business. This is repaid to them when they retire.

The Current Account represents their share of profits and losses and profits can be withdrawn as drawings.

Current Account The partners in a partnership or members of an LLP have both Capital and Current Accounts.

The Current Account represents their share of profits and losses and profits can be withdrawn as drawings.

The Capital Account represents their share of the equity of the business and is made up of money (or other assets) they have introduced into the business. This is repaid to them when they retire.

De-Equitisation The removal of equity from a partner. This needs to be under the terms of a well drafted Partnership Agreement.
Designated Member is a member of an LLP who is noted at Companies House as being responsible for regulatory matters. An LLP must have at least two Designated Members.
Dissolution is the process of ending a partnership and splitting up the assets and liabilities between the partners.
Drawings Partners or members of LLPs are not employees (unless they are salaried partners) and so are not paid a salary. they are self employed (Schedule D) and their share of the profits are taken as drawings.

Most partnership agreements have a mechanism which allows partners to take an anticipated share of their drawings each month.

Expulsion is the process of removing a partner from a partnership or a member for an LLP. It is only possible under the terms of a Partnership Agreement.
Fixed Equity Partner A partner who has a fixed share of equity in a partnership and whose drawings are fixed at a set amount. It is similar to a Salaried Partner but usually more tax efficient as a fixed equity parter is self employed and taxed under Schedule D.
General Partnership is a term we use to define a partnership formed expressly or impliedly under the 1890 Partership Act. These are all partnerships that are not incorporated as Limited Partnerships or LLPS and comprise most partnerships.
Incorporation is the process of forming a Limited Company, Limited Partnership or LLP and registering it at Companies House. An incorporated body has, in law, a personality and can form contracts, own property and employ staff in the same way that a person can. General Partnerships are not incorporated and do not have legal personaility. The partners in a General Partnership form contracts, own property and employ staff in their own names whereas Limited Partnership, LLPs and companies can do these things in their own names.
Joint Venture A joint venture can be formed between two or more partieswhich undertake economic activity together.

These parties agree to create a new entity by both contributing equity, they then share in the revenues, expenses and control of the enterprise. This new venture can be a Limited Company, a general partnership, a Limited Partnership or an LLP.

It is vital that the new entity has a joint venture agreement that regulates the parties conduct, the share of profits, losses and capital and what to do in the event of a deadlock.

Limited Company is a corporate body formed under the Companies Act. It has shareholders who own the company and directors who run the company. These may or may not be the same people. A Limited Company has limited liability which means that the directors and shareholders are not responsible for the debts of the company so long as they have not behaved badly.
Limited Liability Partnerships (LLP) A Limited Liability Partnership or LLP is a partnership formed and incorporated under the Limited Liability Partnership Act 2000.
Limited Partnerships A Limited Partnership is a special partnership allowed by the 1907 Limited Partnership Act. This allows for a Limited Partner to have limited liability so long as it is not actively involved in the firm’s management.

Like a General Partnership a Limited Partnership is not a legal entity.

Lockstep The process whereby new parters build up equity in a partnership over time. Locksteps need well drafted partnership agreements.
Mediation This is a process which is part of Alternative Dispute Resolution (ADR). It can be time-consuming and expensive to litigate through the courts so many commercial agreements, including partnership agreements, have mediation clauses in them.

Arbitration is a specific process involving an arbitrator who makes a decision under the Arbitration act 1996.

Mediation is a process where a trained mediator helps the parties reach a decision themselves. Mediation is encouraged by the courts.

Member In a Limited Liability Partnership (LLP) there are Members rather than Partners.
Partnership is a means of running a business where two or more people work together and do not incorporate the business to form a limited company. Partnership can either be expressly formed by agreement or can come about when two or more poeple start working together and sharing the income and expense. There are three types of partnerships – general partnerships under the 1890 Partnership Act, Limited Partnerships under the 1907 Limited Partnership Act and Limited Liability Partnerships under the 2000 Limietd Liability Partnership Act.
Partnership Agreement (or Partnership Deed) An agreement between the partners that sets out the roles and responsibilities of the partners and also the division of the profits and losses of the partnership. LLPs will have LLP Agreements to cover the same issues.

There are very few provisions in the 1890 Partnership Act and so all partnerships should have a Partnership Agreement.

Salaried Partner a partner who does not have an equity stake in the partnership. They tend to be employed and therefore need an indemnity from the equity partners to cover them for the liability they have. They are schedule E for income tax. It is possible to have Salaried Members in a LLP.
Schedule D Income tax paid by the self employed. It is often more tax efficient as expenses can be offset againt profits. Members of LLPs, Equity Partners and Fixed Equity Partners of General Partnerships are Schedule D.
Schedule E Income tax paid by employees. It will be paid by Salaried Partners.
SDLT Stamp Duty Land Tax payable on the transfer of land or the granting or assignment of a lease.
TUPE The Transfer of Undertaking (Protection of Employment) Regulations which govern the terms and contracts of staff when takeovers or mergers occur.
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