2 - BL - Partnerships Flashcards
What is the definition of a Partnership?
A relationship between persons carrying on a business in common with a view to making a profit
There is an overriding duty of good faith in a partnership. What are those duties?
· Honest and full disclosure 😇
· Conflict of duty and interest 🗡️
· Unauthorised personal profit 🤑
Are the partners are personally liable in relation to contracts which are binding on the firm?
Yes
Will a new partner automatically be liable in relation to any debts incurred by the partnership before they joined?
No
Will a partner will still be liable after they retire in respect of debts incurred by the partnership whilst they were a partner?
Yes
What type of liability do partners have?
Joint and several - liable for whole debt but can claim off other partners
If a partner leaves, a third party can treat all apparent partners of the firm (ie before the departure) as jointly liable to pay any new debt incurred by the partnership UNLESS What?
The person has been give:
- actual notice (s 36(1) PA 1890) - for those who have had actual dealings with the partner before departure; or
- constructive notice by virtue of publication of the departure in the London Gazette (s 36(2) PA 1890) -for those who have not had actual dealings with the partner before departure.
However, a former partner will not be liable for debts to any third party who did not know them to be a partner before they left. No notice at all has to be given to such persons.
When can a non-partner (who was never a partner) be personally liable on a partnership debt?
If they have held themselves out as a partner (or have knowingly allowed themselves to be so held out).
Need:
(i) a representation, 🗣️
(ii) Reliance, and 👍
(iii) the third party’s state of mind (‘believing (having faith in) the representation’).🧠
It is important to appreciate that s 14 PA 1890 relates to the liability incurred by the NON-PARTNER, NOT the liability of the firm. The liability of the firm for the acts of a non-partner is established by applying the common law principles of agency.
When will a Partner’s act bind the firm under s5 PA 1890?
- usual kind of business carried out
AND
- in the usual way.
When will a Partnership NOT be bound by a Partner’s actions under s5 PA 1890?
the third party
- knew that the partner not authorised to enter into the contract on behalf of the firm; or 😈🎩
- did not know or believe that the partner was a partner. 🤷🎩
What are the risks for a Partner if they bind their firm without actual authority?
They may be liable to the other partners for breach of contract.
What rules apply to a non-partner who tries to bind the firm?
common law rules of agency apply
When could a non-partner bind the firm under the common law rules of agency?
- held out as having authority to enter into a contract. 🤲🥸
(the firm represents or permits a representation to be made to a third party that a person has authority to bind the firm). - Firm ‘holding out’ that person as a partner.🤲🎩
(e.g. firm carries on using old letterhead (including that partner’s name) after they retire).
What is the default profit share of a partnership
Equal share
How are most partnership decisions made?
by a majority
Which partnership decisions require unanimity?
- Changes to the nature of the partnership business; 🏭
- Introducing a new partner; 👋🎩
- Varying the rights and duties of partners. ⛓️
How can a partner be expelled under the PA 1890?
A partner cannot be expelled by majority vote unless all of the partners have previously expressly agreed that a majority can do this.
(so can’t be voted out)
What is the default effect of a Partner leaving a firm?
the partnership is dissolved
What is the default position on return of capital on dissolution of a partnership?
Subject to any written partnership agreement, once all debts and liabilities have been paid, any money/assets left will be distributed so that each partner is
- paid back their original capital first.
Then,
- per asset sharing ratio - if no ASR then:
- per Profit Share Ration - if no PSR then
- In equal shares
Does an LLP have legal personality?
Yes
Do LLP’s have to be registered?
Yes, at companies’ house
What is the minimum number of “designated members” required from an LLP?
2
What is the responsibility for a designated member of an LLP?
- Signing accounts
- dealing with Coy House
- Acting for LLP if wound up
How does a member cease to be a member of an LPP?
- their death; ☠️
- dissolution (if the member is a body corporate).🫥
- agreement with the other members of the LLP;🤝
- giving notice to the other members of the LLP;📝
If there is no partnership agreement, are there default provisions in place for LLPs?
Yes
By Default:
How do members share in capital and profits
Equally
By Default:
Does the LLP indemnify its memebers?
Yes - an LLP must indemnify its members for payments made and personal liabilities incurred by them in the ordinary and proper conduct of the business of the LLP
By Default:
Who takes part in an LLP’s management
Every member
By Default:
Are members allowed to take remuneration for managing an LLP
No
By Default:
What is required to admit a new member of an LLP ?
consent of all existing members
By Default:
How is the ordinary decision making of the LLP decided?
Marjority
By Default:
Where are the books and records of an LLP available for inspection by the members?
At the registered office
By Default:
What duty is owed by members of an LLP ?
Each member must give
- true accounts and
- full information of
- all things affecting the LLP
- to any member or his legal representative
By Default:
What happens if a member of an LLP (without consent) carries on any business of the same nature as, and competing with, the LLP?
They must account for and pay over to the LLP all profits made by them in the business
By Default:
Does every member of an LLP has a duty to account for benefits derived from transactions with the LLP and its business or property
Yes
By Default:
Is there an implied right of expulsion of a memeber?
No, unless the members have expressly provided for such a power in a Members’ Agreement
Who registers for VAT for an LLP
The LLP
Why might an LLP be more disadvantageous than a company?
LLPs are subject to the ‘clawback’ rule, which means that in certain circumstances money taken out of the LLP by members up to two years before commencement of a winding up of the LLP can be clawed back into the pool of assets available to repay LLP’s creditors.
Is a memorandum still needed for an incorporation?
Yes, but it just mentions the first members.
What happens if an LLP is left with just one member?
There’s a 6 month grace period and then the member becomes jointly and severally liable with the LPP after the grace period.
