1.6 Business - Partnerships Flashcards
What is a partnership?
S. 1 PA 1890
1) Persons carrying on business
- 2 or more persons > Commercial venture/business (trade, occupation, profession)
- NOT charitable organisation/social club
- NOT future business agreement
2) In common
- General partners must have say in management (otherwise can dissolve partnership)
- NOT ownership of property/unrelated joint owners of building
3) View of profit
- Only prima facie evidence > Ancillary profit + Predominant motive
- NOT alone JT/TiC/sharing gross returns
What is required for forming a partnership?
1) Parties’ intent
- Writing/NO writing
- Writing desirable > Determine future events + certainty re partners’ agreed terms re mgmt (otherwise PA 1890 would apply by default)
2) Initial capital reqs (initial partners’ discretion)
- Proportions to be offered
- P/L apportioned in same proportions?
- Interest on capital/undrawn profits?
- Initial investment in cash/assets?
- Capital contributions of incoming/outgoing partners
3) Name
- NO approval needed (UNLESS name likely give impression business connected w/ Gov or local auth) (Business Names Act 1985)
- ALL partners’ names
- NOT all partners’ names + GN service address (displayed on pship docs/by notice at offices/given to TPs dealing with pship or asking for such info)
- +20 partners > only indicate list of partners’ names can be inspected on business headed letters
NO registration reqs
What are the types of partnerships? How long do they last?
Partnership at will
- Terminates after partner gives notice to other partners
- Terminates automatically (partner’s death)
Partnership - Fixed term
- Pship agreement
- After term expires > Partners’ rights and duties remain same as at expiration (consistent w Partnership at will) (UNLESS new express agreement)
What is partnership property?
TP sells property to pship
- Pship’s money used to pay (cheque drawn on pship’s account)
Partner contributes property to pship
- Value of property > Credited to his capital account
Partner’s property is essential part of pship’s property
- Stock in trade
How is partnership property managed?
Transfer to partners
- ALL partners (co-owners) > Increase in value => Pship
- One partner > Liable for decrease in value
Sale to TP
- Partners liable for CGT + capital losses (based on Partner’s share in pship)
Dissolution
1) Partners’ creditors > Can sell his private assets
2) Pship property sold to Pship’s creditors
3) Surplus => Partners/Partners’ creditors
What are partners’ fiduciary duties to each other?
Actual/Prospective partners
- Tender account and full info
- Account for private profits
- Assignee’s right to shares
- NOT compete with firm
Duty of good faith
Duty to disclose all relevant info
- Otherwise can set aside deals
For pship as whole
- Maj to consult with min
What is the duty to tender true accounts and full info?
1) Positive duty to disclose facts
- Affecting firm
- Not just negative duty not to misrepresent facts
2) Either
a) Benefits derived w/o partners consent/using pship name or business connection
- Profits in breach of s29 PA1890 => Held on trust for pship as whole (UNLESS partners consent to keeping profit after full disclosure)
b) Deals entered
- After dissolution + before WU
- By alive partners/deceased partners’ reps
3) To all partners
- Actual
- Prospective (pre-contract/negotiation stage)
What are the assignee’s rights to shares?
Partner (Assignor) > Assign shares > Partner (Assignee)
- Absolute
- Mortgage/Redeemable charge
Before dissolution
- Receive Assignor’s profits
- Accept profits agreed by partners
- NOT interfere in mgmt/admin of pship business or affairs
- NOT require account of pship deals
- NOT inspect pship books
After dissolution
- Receive Assignor’s asset shares => Account from date of dissolution > Ascertain that share
What is the duty not to compete with the firm?
S. 30 PA1890
Partner’s business
- Same nature/competing business as pship > All partners must consent (UNLESS pship deed terms varied (expressly/implicitly))
Otherwise breach of no CoI duty
Competing business
- Account for profits
- Court injunction
Non-competing business
- Court injunction
- Dissolution
- Pay damages (NOT account for profits)
Are partners liable for the partnership’s debts?
S.9 PA
1) Partner must pay off own creditor
2) Pship’s creditor can sue any partner
- Jointly liable (NOT limited)
3) Paying partner can claim contribution from other partners
How may partners bind firm/partners to deals?
S. 5 PA1890
Pship (Principal) > Partner (agent)
- Pship is liable
- UNLESS partner not authorised + TP knows no authority/believes he is not partner
Partner (Principal) > Partners (agent)
- Liable
Authority
- Actual/Implied/Apparent
What is required for actual authority?
Specifically agreed by partners
What is required for implied authority?
Implied from partners’ course of dealing
Natural consequence of authority given to partner
What is required for apparent authority?
1) Either
- Principal represents Agent has authority (words/conduct)
- Partner appears authorised
2) Transaction is connected with business + conducted in usual way of business
3) TP knows/believes he is dealing with partner
Examples
- Buy or sell stock and other goods used in business
- Hire employees
- Pay debts owed by pship
NOT examples
- Make firm liable on deed
- Give guarantee
- Accept debt payment at discount
- Take non-pecuniary (shares) assets for debt
- Going to arbitration (not litigation)
- Pship land sale
How may pship be bound by a partner’s admissions/notice?
Partner > Notice re pship affairs > Partner
- Habitually acts in pship business
- NOT fraud consented by partner
=> Notice to pship
Partner > Admission/Rep > TP
- Ordinary course of business
=> Notice to firm
How can partnership agreements be varied?
1) Rights + Duties
- PA 1890
- Ascertained by agreement
2) Unanimous consent
- Express
- Inferred from course of dealing
Are new partners liable for the partnership’s debts before they joined?
Generally not liable (s. 17)
Liable > Novation
- UNLESS TP not agree
- UNLESS multiple TPs regard original partner as liable > Should ensure he can recover indemnity from existing partners
Are retired partners liable for the partnership’s debts?
Debts before retirement
Debts after retirement
- Held out as partner (s. 14)
- Not given proper notice re retirement (s. 36)
UNLESS deed or retirement drawn up > Can claim indemnity from existing partners
- Restrain partner acting in specified areas/period for similar business
- Clarifying partner cannot use pship name
- Solicit other partners’ customers
- Assign benefit of pship lease to existing partners
How may partnerships be dissolved without court?
S 32-34
Expiration/Notice (partners’ agreement)
- Term expiration
- Termination of single adventure/undertaking
- Undefined term > Partner gives notice to partners re intent to dissolve
Bankruptcy/Retirement/Death/Charge on pship property for separate debt
- Partners can choose to dissolve
- Partner can sell share > other partners (based on last accounts) (pship agreement)
Illegality of pship
- Unlawful to continue business
How can partnerships be dissolved with court involvement?
S 35 Partner applies to court > Decree issuance - Mental disability - Permanent incapability - Prejudicial conduct to pship - Wilful/Persistent breach of agreement/conduct affecting relationship - Business only capable at loss - Just and equitable > Dissolution
How can partnerships be dissolved by creditors?
Voluntary arrangement
- Insolvent pship members > Settle debt > Creditors (IA 1986, Insolvent Partnerships Debt 1994)
Administrator appointment
- With/Without court involvement > Appoint
- Administrator can propose to creditors (Pship’s survival/More advantageous realisation of assets)
- Otherwise if firm’s assets cannot meet debts > Order (WU + Bankruptcy petitions vs Partners)
What are the continuing partners’ rights during winding up?
Section 38
Pship (dissolved) is liable to TPs
- To extent necessary for WU
- To extent to complete NOT finished deals at dissolution (NOT new deals)
Continuing partners can sell pship assets to pay TP debts
How is realisation of assets carried out after dissolution?
Ascertain value of assets
- Goodwill (over and above net tangible assets like plant and machinery) (if pship sold as going concern)
Ascertain creditors’ debts and liabilities
What happens in the sale of a partnership?
1) Sale of assets
- Trade name/Customers/Employees/Equipment
- NOT shares (unlike private co)
2) WU
- Partners receive sale proceeds as capital according to pship agreement
- Partners leaving may receive profits > CGT applies
