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SQE2 - Business Organisations > 1.6 Business - Partnerships > Flashcards

1.6 Business - Partnerships Flashcards

1
Q

What is a partnership?

A

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

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2
Q

What is required for forming a partnership?

A

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

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3
Q

What are the types of partnerships? How long do they last?

A

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)
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4
Q

What is partnership property?

A

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

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5
Q

How is partnership property managed?

A

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

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6
Q

What are partners’ fiduciary duties to each other?

A

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

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7
Q

What is the duty to tender true accounts and full info?

A

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)

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8
Q

What are the assignee’s rights to shares?

A

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

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9
Q

What is the duty not to compete with the firm?

A

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)
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10
Q

Are partners liable for the partnership’s debts?

A

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

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11
Q

How may partners bind firm/partners to deals?

A

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

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12
Q

What is required for actual authority?

A

Specifically agreed by partners

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13
Q

What is required for implied authority?

A

Implied from partners’ course of dealing

Natural consequence of authority given to partner

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14
Q

What is required for apparent authority?

A

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
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15
Q

How may pship be bound by a partner’s admissions/notice?

A

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

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16
Q

How can partnership agreements be varied?

A

1) Rights + Duties
- PA 1890
- Ascertained by agreement

2) Unanimous consent
- Express
- Inferred from course of dealing

17
Q

Are new partners liable for the partnership’s debts before they joined?

A

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
18
Q

Are retired partners liable for the partnership’s debts?

A

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
19
Q

How may partnerships be dissolved without court?

A

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

20
Q

How can partnerships be dissolved with court involvement?

A 
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
21
Q

How can partnerships be dissolved by creditors?

A

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)
22
Q

What are the continuing partners’ rights during winding up?

A

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

23
Q

How is realisation of assets carried out after dissolution?

A

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

24
Q

What happens in the sale of a partnership?

A

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

SQE2 - Business Organisations (16 decks)

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