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Business Law & Practice > 2. Partnership > Flashcards

2. Partnership Flashcards

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1
Q

What is the s 1 definition which a relationship must meet to constitute a partnership?

A

Carrying on a business in common - i.e. more than one person, with a view to a profit

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2
Q

What is a partnership at will?

A

A partnership formed with no express agreement as to duration

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3
Q

What sections of the Partnership Act cannot be overridden by an agreement?

A

Ss 1, 2, 5-18

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4
Q

What cannot be included in the name of a partnership/ the trading name?

A

“Limited”, “Ltd” etc
Anything offensive
Similarity to existing trademarks
Indication of connection to government / local authorities

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5
Q

What is the effect of a commencement date in a partnership agreement?

A

Date from which the particular terms within the agreement take effect - terms set out in the PA will apply until the commencement date

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6
Q

If a partnership agreement is fixed terms, and the partners carry on in business after the expiry of the fixed term, what terms are they presumed to be working on?

A

Same terms as within the agreement

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7
Q

What requirements are there for partners regarding input in the business?

A

None

Partnership agreement should state working hours

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8
Q

What are the limitations on restraint of trade clauses in partnership agreements?

A

Must go no further than necessary to protect legitimate interest of party relying on clause

E.g. rival employment agency with 3,000 meter radius restriction was UNREASONABLE

6 month duration has been found to be REASONABLE

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9
Q

Which 3 decisions must be unanimous, instead of taken by partner majority?

A
  1. Changing the nature of the business
  2. Introducing a new partner
  3. Changing the terms of the partnership agreement
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10
Q

What is the position in the PA regarding a partner’s shares in income and capital profits and losses?

A

Partners share equally - any variation should be set out in partnership agreement

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11
Q

What is the position in the PA regarding expulsion of a partner?

A

It is not possible unless expressly agreed - therefore partnership agreements often contain an expulsion clause

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12
Q

How can a partnership at will (i.e. one without a fixed end date) be dissolved?

A

Instantly by one partner just informing another partner they wish to end it

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13
Q

If there are no agreed retirement conditions in a written partnership agreement, how does one partner retire?

A

By dissolving the partnership

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14
Q

What events trigger the dissolution of a partnership?

A
  1. A partner retires
  2. Expiry of a fixed term
  3. Death or bankruptcy of any of the partners
  4. Notice of dissolution granted (by court or other partners) over one partner’s shares of partnership for debt owed by them
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15
Q

In what events can you apply to court under s 35 PA for an order that the partnership is dissolved?

A
  1. A partner becomes permanently incapable of performing their part of the contract
  2. Partner’s conduct is calculated to be prejudicial to the business
  3. Partner wilfully or persistently breached partnership agreement
  4. Partnership can only be carried on at a loss
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16
Q

What is the effect of automatic dissolution?

A

The business is either sold as a going concern (which realises the value of any goodwill) or the individual assets are sold

Proceeds are used to pay off debts and then the balance is used to return capital

The outgoing partner must receive their share (proportionate to initial capital contribution)

Any final balance is distributed amongst partners

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17
Q

What is the position regarding interest under PA while a partner is waiting for payment of their shares from other partners?

A

They are entitled to either interest at a rate of 5% per annum on value of their partnership share until they receive their share from other partners

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18
Q

How is goodwill commonly calculated?

A

2 years profit

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19
Q

What is the order for distribution of proceeds of sale of a partnership, under s 44 PA?

A
  1. Creditors paid in full (balance from partners’ private assets if shortfall)
  2. Partners who have lent money must be repaid
  3. Partners paid share of partnership’s capital to which they’re entitled
  4. Surplus shared between partners in accordance with agreement
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20
Q

What are a partner’s responsibilities contained within ss 28 to 30 PA regarding duty owed to each other?

A

Must be completely open with one another regarding any relevant info regarding partnership

Must account to the firm for any private profits earned from any transaction concerning the partnership without other partners’ consent

Must not compete with the firm

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21
Q

Do partners need to expressly agree to the ss 28 - 30 PA?

A

No, silence on this issue means that the default position from the PA applies

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22
Q

What are a partner’s responsibilities under s 24 PA?

A

Bear a share of any loss made by the business

Indemnify fellow partners who have borne more than their share of any liability or expense connected with the partnership

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23
Q

When is a firm bound by any contract or deed?

A

When entered into in the firm’s name, provided the partner’s actions were authorised by the partners

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24
Q

What are the types of authority a partner may have for entering into a contract, which the partnership would then be bound by?

A

Actual authority (express or implied)
Apparent authority

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25
Q

What constitutes implied actual authority?

A

The partners have impliedly accepted that one or more partners have authority to represent the firm in a particular type of transaction

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26
Q

What is apparent authority?

A

When actions were not actually authorised by which may have appeared to an outside to be authorised, therefore the firm are still bound by the contract

27
Q

What are the 4 criteria for identifying whether there was apparent authority (and therefore partnership is bound by the contract)?

A
  1. Transaction relates to the business of the kind carried on by the firm - objective test therefore how it would appear to reasonable person
  2. Transaction is one for which a partner in such a firm would usually be expected to have the authority to act - objective test
  3. Other party did not know partner didn’t have authority - subjective test
  4. Other party deals with a person whom they know or believe to be a partner - subjective test
28
Q

What is the PA position on partners’ liability for partnership debts?

A

Jointly and severally liable with the other partners (unlimited)

29
Q

If a partner is leaving a partnership, what steps should be taken to ensure they do not remain liable for debts incurred when partners?

A

Either:
Indemnity - does not give total assurance since continuing partners may not be able to meet liabilities under indemnity

Or:
Novation - where bank is persuaded to release the client from liability (likely only possible if a substitute partner is introduced or bank is given some other security)

30
Q

What is the PA position on partners’ liability for losses?

A

They share liability equally - e.g. £100,000 loss, they are liable for £50,000 each

31
Q

When a partner retires, how are they released from liability for existing debts?

A

By entering into a contract with the creditor and other partners and possibly an incoming partner, under which the creditor releases them

32
Q

What are the s 36 requirements which a retiring partner must have complied with, in order to escape liability for any debts entered into after they had left the partnership?

A
  1. Anyone with whom the firm has dealt with before must be given actual notice of them leaving
  2. Notice placed in London Gazette as notice to the “whole world”
33
Q

What is “holding out”?

A

Where a creditor has relied on a representation that a particular person was a partner in the firm, they may be able to hold them liable for the firm’s debts

If someone holding out based on being misinformed about person being a partner by someone else, then partner is not liable

34
Q

What is a “leave in” and when would it be relevant?

A

Usually a retiring partner leaves an amount in order to pay their share of any outstanding debts they are liable for

If partnership sued at later date, retired partner would pay but then claim against remaining partners for indemnity on basis of “leave in”

35
Q

What can be done when a partner cannot pay?

A

Third parties have the usual debt enforcement options

36
Q

How many members must an LLP have?

A

At least 2 on incorporation, plus 2 designated members (responsible for filing at Companies House)

37
Q

How is an LLP incorporated?

A

Filing form LL IN01 at Companies House along with applicable fee

38
Q

What is a designated member?

A

Similar powers to directors in a company but with additional LLP specific duties

39
Q

What is the default position within LLP Regulations regarding capital and profits?

A

Members share these equally
Members only risk losing their capital contributions
No default provision regarding losses

40
Q

When has case law established that partners own capital profits in unequal shares?

A

If it can be inferred by a course of conduct - then may be shared according to capital contributions

41
Q

What is the default position within LLP Regulations regarding management and decision-making?

A

Every member takes part in the management
Members are not entitled to remuneration for taking part

42
Q

What is the default position within LLP Regulations regarding a member leaving the LLP?

A

Can leave by giving reasonable notice to other members
Cannot be expelled
Must notify Companies House when a member leaves

43
Q

Who pays income tax?

A

Individuals
Sole traders
Partners - on their share of partnership profit
PRs / trustees

44
Q

When does the tax year run?

A

6 April until 5 April following year

45
Q

What are the steps for calculating income tax payable?

A

Step 1 = Calculate total income

Step 2 = Deduct any allowable reliefs

Step 3 = Deduct any personal allowances

Step 4 = Separate NSNDI, savings income and dividends income, and calculate tax on each at applicable rate

Step 5 = Add together all from Step 4 to give overall income tax liability

46
Q

What are the key sources of income which attract income tax?

A

Trading income, property income, savings and investment income, employment and pensions income, certain misc incomes

47
Q

What allowable reliefs may be available under stage 2 of the income tax calculation?

A

Interest paid on money borrowed - must be qualifying loan

48
Q

What constitutes a qualifying loan?

A

If an individual borrows money to buy a share in a partnership or to lend money to a partnership, they can deduct the interest they pay on this borrowing from total income

49
Q

What is the relevant cap for relief available for a qualifying loan?

A

Greater of £50,000 or 25% of taxpayer’s total income less allowable pension contributions

50
Q

What is the personal tax free income tax allowance?

A

£12,570 for 2023/24 – reduced by £1 for every £2 of income above the £100,000 limit (therefore £0 once £125,140)

51
Q

What is the marriage allowance for income tax?

A

Can transfer £1,360 to spouse or civil partner if they do not have enough income to use personal allowance for the year

52
Q

What is the blind person’s allowance for income tax?

A

£2,870 subtracted from net income

53
Q

What is the property and trading allowance?

A

Below £1,000, the income will not be subject to income tax and taxpayer does not have to declare it

54
Q

What is the personal savings allowance?

A

£0-£37,700 = £1,000 tax free
£37,701-£125,140 = £500 tax free
Over £125,140 = No allowance

55
Q

What is the dividends allowance?

A

£1,000 for all taxpayers

56
Q

What is the order of taxation for step 4 as part of income tax calculations?

A

NSNDI
Savings income
Dividends income

57
Q

What period do sole traders use to determine their trading profits?

A

They can choose it to suit them with reference to an accounting period

58
Q

What income tax relief is available for an individual’s investment in ordinary shares of some qualifying unquoted companies?

A

Enterprise Investment Scheme - allows individual to deduct from their income tax liability for the year a sum equal to 30% of the amount they have invested

Must not be connected within company 2 years prior and 3 years post purchase

59
Q

In what circumstances is rent-free or low-rent accommodation provided to an employee through their work not taxable?

A
  1. It is necessary for the employee to live on the premises in order to perform their duties
  2. Accommodation is provided so that the employee can perform their duties better
60
Q

What level of loans are tax free?

A

£10,000 within the tax year

61
Q

What is deductible expenditure?

A

Expenditure that can be deducted from an employee’s total income which is wholly, exclusively and necessary in the performance of their duties

62
Q

When does income tax need to be paid?

A

First payment – 31 January
Second payment – 31 July
Any remaining balance – following 31 January

63
Q

What constitutes an abusive arrangement for tax avoidance purposes?

A

When the carrying out of the arrangement cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provision

Business Law & Practice (7 decks)

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