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SQE1 - BLP > 2. General Partnerships > Flashcards

2. General Partnerships Flashcards

1
Q

What are the three requirements for a general partnership under the Partnerships Act 1890?

A
  1. Two or more persons
  2. Carrying on a business in common
  3. With the intention to make a profit
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2
Q

Does persons include corporate bodies as well as people?

A

Yes

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3
Q

Is it material if a business never actually realises a profit?

A

No, as long as they intend to

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4
Q

What does a party receiving a share of the profits of a business raise the presumption of?

A

That a partnership exists

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5
Q

In what three situations will receiving a share of the profits of a business not raise the presumption that a partnership exists?

A

Money is:

  1. Repayment of a debt
  2. Remuneration to employee/agent
  3. Annuity to a survivor of a partner on account of their share or to a person who has sold the goodwill in the business
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6
Q

Does a party need to contribute capital to be considered a partner?

A

No

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7
Q

What is the limit on the number of partners that can be in a general partnership?

A

There is no limit

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8
Q

What is the general rule for a partner’s ability to bind the partnership and other partners?

A

A partner in a partnership is an agent of the partnership and the other partners, and can bind both as long as he has authority

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9
Q

What are the two ways an act can bind the firm through actual authority?

A

Act:

  1. Done in a way showing intention to bind the firm, or
  2. By any person actually authorised by the firm to undertake the act
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10
Q

What is implied actual authority?

A

Where there is no express actual authority, but implied through regular course of dealing.

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11
Q

What type of act must a partner make to bind the firm through apparent/ostensible authority?

A

An act carrying on the business of the firm in the usual way. Binds third-parties, in so far as they believe partner has authority to act.

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12
Q

What two things must be true for apparent authority to not bind the firm?

A
  1. Partner had no authority to act, and
  2. The person with whom the partner was dealing either knew the partner had no authority to act, or did not think the person with whom they were dealing was a partner
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13
Q

When will notice given to a single partner be attributed to the firm?

A

When it is given to a partner who habitually acts in the business

(except where the notice-giver and the partner are engaged in fraud against the firm)

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14
Q

If it turns out that there was neither actual nor apparent authority, who is bound?

A

Only the partner who entered into the dealing, in their personal capacity

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15
Q

What is a general partner’s liability for debts of the partnership?

A

Unlimited

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16
Q

What does it mean that partnership liability is joint and several?

A

A creditor can pursue one or all of the partners

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17
Q

Would an incoming partner be liable for the partnership’s debts incurred before becoming a partner?

A

Not unless they agree

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18
Q

What is needed to add a new partner?

A

Unanimous consent of all partners

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19
Q

Is a retiring partner liable for debts incurred before they leave?

A

Yes, unless they enter into a:
(i) deed of release from willing creditors;
(ii) novation agreement (btw new, old partners, and creditors agreeings); or
(iii) indemnity from remaining partners.

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20
Q

What is the general rule regarding a person dealing with a firm after a change in its membership?

A

The person is entitled to treat all apparent partners of the old firm as still being partners until they receive notice of the change

21
Q

In the case of (1) existing creditors and (2) world at large, what must a retiring partner do to give notice of their retirement and therefore not be liable for obligations arising after they leave?

A
  1. Existing creditors: Provide actual notice
  2. World at large: Place advertisement in London Gazette
22
Q

In what situation will a third party not be able to enforce an obligation on a retiring partner which arose after they left, even in the absence of notice?

A

Where the third party did not know the person was a partner

23
Q

What is the holding out rule?

A

If a person holds themselves out to be a partner even if they are not, they may be held liable as a partner if any third party extends credit on the strength of the holding out.

The same is true if a person knowingly allows another to hold them out as a partner.

24
Q

How can holding out apply to retiring partners?

A

If they fail to give proper notice, or do not ensure their name is removed from partnership notices, websites, or stationery, they may inadvertently hold themselves out to still be a partner

25
Q

What is the statutory definition of partnership property?

A

Property acquired or brought into the partnership for partnership purposes and in the course of partnership business

26
Q

How is property (1) belonging to an individual partner and used in the business and (2) given by a partner to the business treated?

A
  1. Property belonging to an individual partner remains their property
  2. Property given by a partner to the firm becomes partnership property and is treated as a capital contribution.
    * individual partners have no individual right to partnership’s assets.
27
Q

Unless a contrary intention is shown, how is property bought with money belonging to the partnership and property titled in the firm name treated?

A

As partnership property

28
Q

What is the determining factor in determining whether property brought into the partnership becomes the partnership’s or remains property of the individual?

A

The intention of the individual

29
Q

What is required for individual property to become partnership property?

A

Express or implied agreement between the partners

30
Q

Unless agreed, how must partnership property be held and applied?

A

Exclusively for the purposes of the partnership

31
Q

Can creditors of an individual partner seek to satisfy their debt from partnership property?

A

No

32
Q

What is the effect of an individual partner’s creditor being granted a court order for a share of that partner’s profits?

A

They become entitled to the profits in satisfaction of their debt, but this does not make the creditor a partner

33
Q

Is a partner entitled to interest on (1) their capital contributions and (2) a loan made to the partnership?

A
  • Capital: No
  • Loan: Yes, at 5% per year
34
Q

Is a partner generally entitled to remuneration for acting in the partnership business?

A

Not unless the partnership agreement provides for such

35
Q

How is the right to manage the partnership business shared?

A

Equally. One partner, one vote

36
Q

In general partnership:
Whilst most decisions require a simple majority vote, what three decisions require unanimity?

A
  1. Admission of a new partner
  2. Change in the nature of the partnership business
  3. Alteration to the partnership agreement
37
Q

What is the duty to account for secret profits?

A

Each partner must account to the partnership for any profit/benefit obtained without the consent of the other partners from:

  1. A transaction concerning the partnership, or
  2. Any use by the partner of partnership name/property
38
Q

What is the duty to account for profits of a competing business?

A

If a partner carries on a business in competition with the partnership, without consent from firm’s partners, they must account for all profits

39
Q

What is a partnership at will, how is it dissolved by notice, and when does this take place?

A

A partnership that was not set up for a fixed term will be dissolved by any partner giving notice to the others of their intention to dissolve.

It will be dissolved on the date provided in the notice, and if no date is provided, upon communication of the notice.

40
Q

How is a partnership dissolved by death, bankruptcy or charge?

A

A partnership is dissolved if:

  1. Any partner dies (automatically)
  2. Any partner becomes bankrupt (automatically), or
  3. Any partner charges their share of profits to pay off a personal debt (at the option of the other partners)
41
Q

If partnership assets are insufficient to repay creditors, who is liable for the shortfall?

A

The partners are personally liable, in the proportions discussed previously

42
Q

What is the first use of any partnership assets remaining after creditors are repaid?

A

They are used to repay any advances/loans made by the partners to the partnership

43
Q

If assets remain after advances are repaid, how are they used?

A

To repay capital contributions

44
Q

If assets remain after capital contributions are repaid, how are they used?

A

Divided among partners, in the proportions discussed previously

45
Q

What is the effect of dissolution on partner authority?

A

The authority of each partner to bind the firm will continue:

  1. In order to wind up the partnership, and
  2. To complete transactions which were started but unfinished at the time of dissolution
46
Q

Under the Partnership Act, what is the order by which losses should be paid?

A

Losses should be paid from:

  1. Profits, then
  2. Capital, then if necessary
  3. Further contributions by partners
47
Q

What is a partner’s tax liability?

A

Each partner must include in their income their share of the profit made by the partnership whether or not it was distributed

48
Q

What are the fives reasons a partnership may be dissolved by court order?

A
  1. Permanent incapacity of a partner
  2. Prejudicial conduct
  3. Willful or persistent breach of partnership agreement
  4. Business can only be carried on at a loss
  5. Just and equitable
49
Q

What are the key default provisions applicable where partnership has no Partnership Agreement?

A

1) all parts have a right to partake in firm’s management.

2) not entitled to a salary

3) all unanimously agree introduce a new partner and/or change nature of business.

4) ordinary disputes are decided by majority vote.

5) unanimity required to expel a partner;

6) capital and profits are shared equally;

7) must all contribute equally to capital losses;

8) partner can claim $ back for expenses incurred over the course of business;

9) interest is payable on loans given out to partners, but not capital.

SQE1 - BLP (10 decks)

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