Company Law and Commercial Mortgages

There are many considerations that you should consider before embarking on a commercial mortgage. Perhaps no less important is being able to recognize the different types of borrowers and the legal framework under which they operate. It is also necessary to have a good understanding of the basic principles of business law associated with property. The different types of borrowers will include a sole trader, a partnership, a limited liability company and a limited company.

 Sole Trader:

A sole trader is often referred to as self-employed workers. There are current guidelines regarding what constitutes self-employment, established by HM Revenue and Customs. Guidance points include:

- Independent control on where and when the individual works.

- Capital and investment risk, including the contribution of the losses suffered.

- The ability to employ others to work under you.

- The supply of all necessary equipment.

Partnership:

There are two broad categories of association; a commercial company and a non-commercial company. However, in its simplest form, a company is defined as a group of exclusive merchants who conduct a joint venture in order to make a profit. This definition was first described in the Society Act of 1890. In most cases, a partnership will be formed after a formal agreement in writing, although it may also be formed on the basis of a verbal agreement or may even be implied . When there is no current agreement, it is assumed that all partners have an equitable share of the company's profits and assets.

As mentioned above, the two types of associations are:

- A commercial association: it is limited to 20 partners and will include crafts such as carpenters, builders, plumbers, etc. A business partnership has an implicit authority to borrow and offer security.

- A non-commercial association: this type of association does not have an upper limit to the number of members. This will include signatures of accountants, lawyers and other similar professionals. Certain partners in a non-commercial partnership may receive a salary instead of a part of the partnership. In turn, they will not have any responsibility for the debts contracted in the name of the company. Unlike a commercial society, there is no implicit power to borrow, however, partners can organize this power through the partnership agreement.

The main points that must be delineated with a company are that the assets are jointly owned by the partners (unless otherwise indicated in the company's agreement), who will also be jointly and severally liable for the company's debts.

Limited Liability Partnership:

A limited liability company is one in which the liability of each partner is limited to the capital that he or she introduced in the business, similar to the shareholders within a limited company. This type of partnership was established for the first time in 2000 with the arrival of the Limited Liability Companies Act of 2000. The scheme establishes that this type of company will be a separate legal entity that will be registered in the Registry of Companies.

Limited Company:

The basis for forming a limited company is through an issuance of shares. Apart from any initial investment, shareholders have no further responsibility beyond their initial investment. The company is seen as a separate legal entity with a different division of its directors. A limited company has the ability to borrow as long as such powers are stipulated in its memorandum of association.