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. ⛓️