Foundations of Law - Assignment

Running head: FOUNDATIONS OF LAW
Foundations of Law
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Question 1. An overview of the different business structures in Morocco;
The Moroccan law permits several forms of business and structures. They range from
private limited companies, limited liability companies, partnerships, which may be general or
limited or joint ventures. All these business structures operate in line with the Western forms of
companies. The following description outlines some of the widely used business structures in
Morocco.
Limited Liability Company require not less than five shareholders that are either
individuals of a legal entity. The liability of shareholders is limited to the number of shares
contributed to the company. Equity capital must be paid upfront, in cash as a quarter of the
capital once the company has been incorporated. Equity can also be paid in contributions upon
incorporation. The company can issue both registered and bearer shares with a minimum share
value of 50MDh. The company is registered under a trade name and not a corporate name with
no restriction to sale or transfer of shares.
Private limited companies resemble partnerships and share companies with the difference
coming about in the association between capital and the people. The company must have a
minimum of two or more shareholders (Carringto 2012 p. 65). The shareholders are only liable
to the amount of capital contributed. The company must have a minimum of 10,000 MDh in
equity capital. Private limited companies are different from public limited companies because
they are not necessarily registered merchants. Shareholders must sign a memorandum of
association and pay all the capital stock before being incorporated. Share carry the same face
value and are non-negotiable. Shares are transferable through contracts or consent of other
shareholders. This is commonly referred to as “parts Sociales” in company law.

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Partnerships can be General, or limited depending on the choice of partners. General
partnerships are companies that are formed by members who agree to be jointly liable for the
company debts. They are not limited and can be individuals or corporations registered as
merchants. foreign partners and corporations are free to join a general partnership.
Limited partnerships on the other hand, require one of the partners to have unlimited
liability. The limited partner cannot take part in the management of the company. It is not
common to find limited partnerships in Morocco.
Joint ventures are those types of companies that do not have a separate legal entity. Most
of the company activities are kept private from third parties. However, the company must work
within the requirements of law such as payment of taxes. Joint ventures are common in building
and construction sectors and financial institutions.
Last but not least, there are also sole proprietorships and branch offices. Sole
proprietorships are common forms of business owned by an individual. Morocco allows
foreigners to start sole proprietorships. The individual running the business is liable to its debts
and enjoys profits alone. One only requires to register with the Commerce registry and tax
authorities to commence business (Hannigan 2018 p. 87). Lastly, branch offices are opened as an
affiliate of another company, mostly foreign. The government requires the parent company to
disclose certain information regarding owners and extent of control or power. The parent
company must provide an article of incorporation and other documents before incorporation.
Question 2. Advise on the best structure to set up with Rachid considering that James
won’t get involved in the management of the company to set up;

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A limited partnership will be the best structure to set up between Rachid and James. A
limited partnership requires that one partner must have unlimited liability while the other has
limited liability. Since James will not be managing the company directly, his liability is limited
while Rachid will take full management of the company hence unlimited liability (Limited
partner 2018 p. 3-10). Despite being a rare company in Morocco, Limited Liabilities are the most
suitable form of partnerships especially for foreign investors. Since both James and Rachid own
separate companies, they can agree to come together and form a partnership. The entities will
then be required to disclose any necessary information. The commandites or partners will be
responsible for the management, partly of the company and all the debts incurred by the
company. In this case the limited partner or commanditaire, who is Rachid will take full
responsibility of the company.
The legal status of the partners; James and Rachid, are like those of shareholders in a
limited liability company (SARL). The amount of capital is not limited to any partner.
Furthermore, the partners can agree to form an intercompany partnership with an aim of
developing their business activities. James and Rashid share similar needs whereby, James
requires the supply of seaweed as a raw material for his cosmetic company. Rachid wants to
expand his business to overseas and has already approached Elliot Charles for a partnership in
Cardiff. The new partnership cannot affect the partnership between James and Rachid. On the
other hand, Rachid can still operate their limited partnership company from Morocco and
overseas since the rules of operation do not differ. A limited partnership will allow the partners
to develop common activities such as marketing of their products and raw materials, joint sales,
development of research at a cheaper cost and promoting exports. Limited partnerships allow
partners to define their internal rules and regulations so long as the parties are able to work

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within the law and fulfill each partners requirement (Morse 2015 p. 2-50). Since members are
liable for their debts, chances of mismanagement are likely to cost them hence the need to
maintain professionalism. Therefore, I strongly suggest that Rachid and James consider a limited
Partnership because of the need to develop their business and maintain the flow of raw materials.
While Rachid will focus on the management and development of his company, James will
receive the raw materials as required together with other benefits as we are going to discuss
below. James will invest capital in the partnership but will not take part in the active
management of the company.
Question 3. Advantages and Disadvantages of Choosing Limited Partnerships
Registration of limited partnerships comes with many benefits. The limited partner,
James benefits from his limited liability where he can share in the profits of the company and his
initial investment in the company. Remember the limited partner only invests the agreed capital
and does not take part in the active management of the company. Therefore, James can
effectively receive raw materials and run his own company without worrying about their
partnership.
Limited partnerships can use their corporate general partnership despite having unlimited
liability. The correct structure of the limited liability can protect the partners from unlimited
liability hence introducing what we call intercompany partnerships. Such partnerships allow
partners to develop their activities such as research, sales and marketing. Third, limited partners
are known to be transparent in their share of and flow of income, profit and losses. Partners share
fiscal responsibilities equally. Limited liabilities are easier to file requirements since they are
classified as non-qualifying partnerships. They only prepare their accounts as required by the
Partnerships Regulations Act 2008 (SI 2008/569). The accounts are a demonstration of financial

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position and are used for the preparation of tax returns. Since limited partnerships are not
regarded as a separate entity, they cannot file confirmation statements. The partnerships cannot
maintain the control of public register for inspection. These some of the benefits that such
partnerships have over other business structures such as private and public limited companies.
Lastly, to maintain the privacy of the limited partner, a limited partnership agreement is
required. The general partner and limited partner must write and sign a limited partnership
agreement outlining the purpose of registering the partnership, the rights and duties of the
partners and capital or equity contribution as well as sharing of profits. The document can be
kept from third parties since it does not require to be filed by any authority such as the
Companies House in the UK.
The major disadvantage of limited partnerships is that general partners assume the liability of
business debts, losses, and management. If voting rights are not prepared carefully, general
partners may end up being constrained to operate the business which is disadvantageous for the
case of James who lives overseas. The use of equal voting rights may result in a deadlock that
limits the ability to make a decision over the management or incorporation of the company.
Partnerships are generally limited when it comes to private financing because sale of company
stock is not possible. In addition, partners will require personal security to acquire financing
from any institution. It is a huge limitation on the liability of an individual (Morse 2015 p. 2-50).
Partnerships require lengthy documentation including the official signing with the state that they
are located. Annual meetings must be held to detail the partnership agreement. Lastly, limited
partnerships are more likely to attract excessive taxes with little or no perpetuity due to lack of
government protection. Limited partnerships are an ideal venture for those businesses that use

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labor capital. A partnership between James and Rachid could be ideal where James can be
contributing towards the finances while Rachid runs the company management.
Question 4. Steps for creating a Limited Partnership
The state of Morocco requires the filling of the certificate of partnership after payment of
the required fee. The limited partnership will then be required to pay a stipulated amount for
registration and should be renewed every year. Since there are no requirements for financial
reporting, the company does not require to prepare or submit any financial statements. Instead, it
has to keep an accounts statement for purposes of planning and tax compliance.
The law requires a minimum of two partners with no stated minimum amount of capital
for each partner. The shareholders have a limited responsibility and liability. Normally foreigners
are not restricted to invest in Morocco on the condition that they should not own agricultural
land. The country does not insist on any local partner or joint venture requirements.
The process of pre-incorporation of the partnership can be done through consultants after
paying an agreed fee, signing engagement letter and providing the relevant documents. The
partners can then agree on a name and structure of the company. Consulting companies help in
the drafting of engagement plans as well as the suggest other requirements such as the name and
structure of the company.
The process of incorporation involves the registration of the company with the Regional
Investment Center for verification of the company details. The body will also request for
Negative Certificate (Fisch, 2018). A negative certificate is drafted to certify the trade name
before registration of the company. The certificate takes a year and can be delivered by the

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OMPIC within the period after which it is cancelled. The partners must file their agreement with
the Regional Investment Center to acquire patent tax with the Ministry of Economy of Finance.
For purposes of inspection, the partnership company may be required to file a declaration
at the Economic Office within the Ministry of Employment and Vocational Training. The
partners may be required to open a multicurrency corporate bank account with one of the major
banks in Morocco. After successful incorporation, the company can then go ahead to set up their
international address and maintain their documents, bank correspondence among many important
aspects of business performance. The commercial register publishes a gazette notice, that is the
Gazetteand companies and the official bulletin (Morse 2015 p. 2-50). Up to this point, the
company can start its operations with minimal disruption from authorities as long as they comply
with the requirements of the law.
Despite there being a possibility of establishing a Limited Partnership through an oral
agreement, it is important to use a written agreement to avoid any disputes and liability between
the Limited partners. Professional assistance can be sought to reduce the complexities associated
with Limited Partnership Companies.
Question 5. Overview of the Liability of Rachid’s Partnership debt and the Possibility of
being sued for the whole of the partnership’s Liability.
Rachid has entered a partnership deal with Eliot Charles where Rachid is the limited
partner. Eliot being the unlimited partner takes up the management of the company. Eliot being
the General manager, must be compensated for running the activities of the company. He is
personally liable for all the business debts.

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Rachid is liable only to the limit of share contribution in the capital. The liability of
Rachid to the company debts cannot exceed the amount invested. Therefore, he is a silent
partner. The money invested in the partnership is given back in form of shares. Rachid has no
voting rights or power on the management of the company. Only when Rachid has been proved
to take an active role in the running of the business, will he become personally liable to the
company debts. Laws regarding limited partners differ but generally, limited partners become
general partners after running the partnership for more than 500 years. Voting rights may be
allowed for those issues that touch on the structure or the continuity of the partnership. By
continuity, we mean the termination of a partnership, sale of partnership assets, removal of a
general partner or changes to the partnership agreement.
However, all partners in a limited partnership are responsible for taxes as per share
contribution. This is because limited partnerships operate as flow-through entities. Limited
partners are only exempted from self-employment taxes. Remember limited partners do not take
an active role in the management of the business hence their income is not considered as income
earned. They can also offset reported losses from income received under the Taxpayer Relief Act
of 1986.
The duties of a limited partner such as Rachid is to carry out the duties of the company.
The limited partner provides share capital and shouldering of the company liability. Secondly,
the limited partner has a duty of loyalty to the company. The actions of the partner must be
geared towards the promotion of the company and not damage it. The non-competition clause
does not apply to limited partners but to general partners.
Limited partners must take part in the loss of profit of the company. The general partner
may carry much of the loss but then the limited partner must also suffer the loss up to the

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shareholding capacity. Profit sharing is distributed as per the share capital unless otherwise stated
in the contract. Fall in profit due to loss must be replenished through company profits before
being shared among the partners (Fisch 2018 p.273-275).
Limited partners lack the right to withdraw but their profits are paid in a lumpsum as per their
liability contribution. Losses that come after payment of profits require that profits should not be
paid out until the losses are recovered.
Lastly, limited partners can be fired or resign from the company. The shareholder
agreement lays down the guidelines of withdrawal from the company. Separation agreements
must be provided so that one is not held liable for debts in the future. If the company had only
one limited partner, the partnership changes to a general partnership after the limited partner
leaves.
A limited partnership must first be filed with the state registry before commencing
operations to avoid legal gray areas for limited partners. The state registry contains the liability
threshold of the limited partner. Otherwise the state will consider the limited partner a general
partner if no registry is made. Other circumstances leading to confusion include the capital
contribution being higher than that of the state registry or vice versa. The limited partner could
be called upon to make their contribution in full in the event of a debt. The regulations may vary
across every country but most of these rules are standard for all partnerships.
Question 6. Elude the shared responsibility for all liabilities and debts associated with the
business
The limited partnership eludes, transfer of interest, partnership or association, business
objective and sharing of profits, liability for debts, continuity of life and the management of

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business. The liability of a limited partnership is not always the same. A limited partnership mut
exhaust all channels of registration before commencing business. For instance, the liability
clause is stated in the state registry entry. A limited partner will otherwise be treated as a general
partner if the registry does not have any documentation outlining the liability of the partner
(Fisch 2018 p.273-275). The contributions towards capital must be clearly stated within the
registry to avoid any confusion that may lead to a limited partner being liable to the company
debt. The Limited Partnership Act 1907 gives limited or sleeping partners limited liability. The
limited Liability Partnership Act 2000 outlines the legal personality under limited partnerships
for trading debts while there is no personal liability for individual partners.
Transfer of limited partnership interest must come from the general partner as outlined in the
partnership agreement. When the limited partner decides to quit a partnership, the remaining
partner automatically becomes a general partner.
The management of the company is left to the general limited partners and not limited
partners. Limited partners have no voting rights regarding the operation of the company.
However, some actions require the vote of a limited partner for example the winding of the
company or welcoming a new partner. The article of association gives limited partners explicit
powers as outlined in the Eleventh Amendment, Edelman v. Jordan1. The right to information is
highly reduced whereby personal opinions about the operations of the company are highly
prohibited especially if they affect the management directly. Limited partners are entitled to the
copy of the company’s financial statements for purposes of book balancing2.
In the event of loss or profit, general and limited partners have different levels of
participation. Shareholders have a share in the dividends of the company up to their contribution.
1 415 U.S. 651, 94 S. Ct. 1347, 39 L. Ed. 2d 662 (1974).
2 864 A.2d 86 (Del. Ch. 2004).

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General partners tend to receive a higher share of profit or loss because they are involved in the
direct management of the company unlike limited partners. Shareholders share in the losses as
per the contributions of their shares or capital share. Sometimes capital participation may go
below the amount of liability contribution as a result of losses. Profits are ploughed back to the
business to replenish the losses before sharing in the profit.
Joining an existing limited partnership gives the liability for existing liabilities as per the level of
share investment. Leaving the company may create a continuity crisis whereby the company has
to continue after a member leaves or otherwise stated in the partnership agreement. A file of
separation agreement comes in handy to outline the process of removal from formal documents
of the partnership. If such procedures are not followed, one is likely to be held liable for business
debt even after leaving the company. In Carden V Arkoma Associates3, there were missing
records of agreements at issue hence parties were liable to the joint stock company debts.
3 494 U.S. 185, 110 S. Ct. 1015, 108 L. Ed. 2d 157 (1990).

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Bibliography
Cases
Carden v. Arkoma Associates, 494 U.S. 185, 110 S. Ct. 1015, 108 L. Ed. 2d 157 (1990).
Haley v. Talcott, 864 A.2d 86 (Del. Ch. 2004).
Edelman v. Jordan, 415 U.S. 651, 94 S. Ct. 1347, 39 L. Ed. 2d 662
(1974).
Books and Journals
Carrington, A. (2012). Business Structures and Incorporation.
Fisch, J.E., 2018. Governance by contract: The implications for
corporate bylaws. Calif. L. Rev., 106, p.373.
Morse, G. (2015). 9. Limited Partnerships. Partnership and LLP Law.
doi:10.1093/he/9780198744467.003.0009
Hannigan, B. (2018). 1. Formation, classification, and registration of companies. Company Law.
doi:10.1093/he/9780198787709.003.0001
Limited partner. (2018, November 29). Retrieved from https://www.ionos.com/startupguide/get-
started/limited-partner/