2. General Partnerships

Question 1

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

Answer 1

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

Question 2

Does persons include corporate bodies as well as people?

Answer 2

Yes

Question 3

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

Answer 3

No, as long as they intend to

Question 4

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

Answer 4

That a partnership exists

Question 5

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

Answer 5

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

Question 6

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

Answer 6

No

Question 7

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

Answer 7

There is no limit

Question 8

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

Answer 8

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

Question 9

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

Answer 9

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

Question 10

What is implied actual authority?

Answer 10

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

Question 11

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

Answer 11

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.

Question 12

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

Answer 12

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

Question 13

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

Answer 13

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)

Question 14

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

Answer 14

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

Question 15

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

Answer 15

Unlimited

Question 16

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

Answer 16

A creditor can pursue one or all of the partners

Question 17

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

Answer 17

Not unless they agree

Question 18

What is needed to add a new partner?

Answer 18

Unanimous consent of all partners

Question 19

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

Answer 19

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.

Question 20

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

Answer 20

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

Question 21

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?

Answer 21

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

Question 22

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?

Answer 22

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

Question 23

What is the holding out rule?

Answer 23

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.

Question 24

How can holding out apply to retiring partners?

Answer 24

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

Question 25

What is the statutory definition of partnership property?

Answer 25

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

Question 26

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

Answer 26

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.

Question 27

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

Answer 27

As partnership property

Question 28

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

Answer 28

The **intention** of the individual

Question 29

What is required for individual property to become partnership property?

Answer 29

Express or implied agreement between the partners

Question 30

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

Answer 30

Exclusively for the purposes of the partnership

Question 31

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

Answer 31

No

Question 32

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

Answer 32

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

Question 33

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

Answer 33

- Capital: No - Loan: Yes, at 5% per year

Question 34

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

Answer 34

Not unless the partnership agreement provides for such

Question 35

How is the right to manage the partnership business shared?

Answer 35

Equally. One partner, one vote

Question 36

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

Answer 36

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

Question 37

What is the duty to account for secret profits?

Answer 37

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

Question 38

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

Answer 38

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

Question 39

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

Answer 39

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.

Question 40

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

Answer 40

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)*

Question 41

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

Answer 41

The partners are personally liable, in the proportions discussed previously

Question 42

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

Answer 42

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

Question 43

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

Answer 43

To repay capital contributions

Question 44

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

Answer 44

Divided among partners, in the proportions discussed previously

Question 45

What is the effect of dissolution on partner authority?

Answer 45

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

Question 46

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

Answer 46

Losses should be paid from: 1. Profits, *then* 2. Capital, *then if necessary* 3. Further contributions by partners

Question 47

What is a partner's tax liability?

Answer 47

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

Question 48

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

Answer 48

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

Question 49

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

Answer 49

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.