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Business and Employment Law > 3: Starting a Partnership > Flashcards

3: Starting a Partnership Flashcards

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1
Q

How does a ordinary partnership deal with tax?

A

A nominated partner registers for tax and submits a partnership tax return on behalf of the whole partnership. The individual partners then register for self-assessment and report their shares of the partnership’s earnings in the same way as sole traders.

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2
Q

When will the law recognise a partnership?

A

When people carry on business in common with a view to making a profit.

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3
Q

Can a partnership be created without express agreement?

A

Yes, it can be created on the terms implied by PA 1890.

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4
Q

Can the terms implied by PA 1890 be overridden?

A

Yes, by agreement orally or in writing from the partners.

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5
Q

What is the limitation period for claims for breach of a deed?

A

12 years, rather than the usual 6 years for breach of contract.

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6
Q

What form is a partnership agreement usually in if it is expressly agreed?

A

A partnership deed or ‘articles’.

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7
Q

What is required by s26 PA 1890 in order to dissolve a partnership entered into by deed?

A

Written notice.

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8
Q

What is required by s26 PA 1980 in order to dissolve a partnership entered into by anything other than a deed?

A

Oral notice.

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9
Q

What will happen to a partnership if it is made illegal by a new Act of Parliament or as a result of war?

A

It will be dissolved automatically (s34).

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10
Q

Is it unlawful to discriminate against a potential partner?

A

Yes, according to s44 Equality Act, it is unlawful if it is on one of the grounds listed in s4 (sex, race, sexual orientation, etc).

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11
Q

Do ordinary partnerships have to prepare accounts and make them publicly available?

A

No, they have no legal requirement to do so, although they probably will to track how the business is doing.

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12
Q

What are the limitations of business names in partnerships?

A

They must follow the rules in ss1192-1198 Companies Act 2006, although the rules don’t apply to a name which consists only of the partners’ surnames, or surnames together with forenames and initials.

However, & Co or & Sons could prevent the exception from applying.

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13
Q

When would the rules in ss1200-1206 CA 2006 not apply?

A

When the company name consists only of the partners’ surnames or surnames together with forenames and initials.

OR

Where there are more than 20 partners, as long as the partnership’s documents give the address of its principal place of business and say that a list of partners can be found there.

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14
Q

What are the rules in ss1200-1206 CA 2006?

A

Partners must disclose the name of each partner and an address within the United Kingdom where legal docs can be sent to. This info should be on every business document and be displayed prominently in any business premises.

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15
Q

What is it called when a partnership has not been created for an agreed fixed term?

A

A partnership at will.

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16
Q

How can a partnership at will be dissolved?

A

According to s26, it can be dissolved by any partner giving notice. This can be orally unless it was created by deed, where it must be in writing.

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17
Q

What is the notice period for the dissolution of a partnership at will?

A

The notice can take immediate effect, no notice period is required.

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18
Q

How can a partnership for a specified duration or venture be dissolved?

A

According to s32, the partnership will dissolve when the duration or venture is completed.

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19
Q

Can a partnership for a specified duration or venture carry on after it is completed?

A

If they continue business after it has been completed, it will turn into a partnership at will, unless agreed otherwise.

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20
Q

What happens to an ordinary partnership when a partner either dies or becomes bankrupt? (s33)

A

According to s33, the partnership dissolves automatically on the death or bankruptcy of any partner, unless it is excluded in the partnership agreement (which is recommended).

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21
Q

Is s26 easy to exclude?

A

Yes, it will not apply if anything in the agreement is inconsistent with it. It will only apply where the partners have not agreed anything about when the partnership can be terminated.

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22
Q

What is the money that is put into the business at the beginning called?

A

Capital contributions.

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23
Q

Can assets also count toward capital contributions, as well as money?

A

Yes, if a partner has an asset that they contribute, that will counted as part of their capital contribution.

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24
Q

Who does something bought with the partnership’s money belong to?

A

According to s21, it is presumed to belong to the partnership, unless there is evidence to the contrary.

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25
Q

Who does anything acquired for the purposes of the partnership business belong to?

A

According to s20, it is partnership property and is held exclusively for the purposes of the partnership in accordance to the partnership agreement.

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26
Q

Who do profits on the sale of partnership property belong to?

A

The partnership.

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27
Q

Who owns partnership property?

A

All partners together.

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28
Q

When a lender is seeking security on a loan to a partnership, what will they likely use as that security?

A

The partners’ personal assets (not just the partnership assets), similar to as a sole trader.

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29
Q

How do you transfer assets and liabilities to a partnership?

A

You can transfer the assets via assignment.

You cannot normally transfer liabilities. Instead, you can transfer the benefit and burden of a contract via novation.

30
Q

What would a transfer of land require?

A

Land Registry transfer.

31
Q

How can moveable assets such as stock, materials and equipment be transferred?

A

By delivery

32
Q

What is the difference between assignment and novation?

A

Assignment: the transfer of the benefit of a contract or debts owed to the business

Novation: the transfer of the benefit and burden of a contract

33
Q

Can you novate a contract without the one party’s approval?

A

No, it can only work if all the parties agree to it.

34
Q

What is novation?

A

Novation is when an exisiting contract between two parties is replaced by a three-way contract transferring the benefit and burden of a contract to a third party.

35
Q

Where an arrangement is not novated, what would happen instead?

A

The supplier will set up a new contract with the new party and end the previous contract.

36
Q

What is meant by a party taking over the benefit of a contract to agree to indemnify the existing party?

A

The new party would agree to reimburse the old party if they have to pay its debts.W

37
Q

What is the drawback of the new party indemnifying the old party when they are selling their business?

A

It would lower the value of the business being transferred, as the new party is effectively assuming responsibility of its liabilities. It would also lower the value of the old party’s capital contributions if they were entering into a partnership.

38
Q

Would an old party decide not to transfer the liabilities of their business when entering into a business?

A

Yes, because if the old party is a partner in the partnership, they would be liable for the liabilities whether or not the partnership takes these on or not.

39
Q

List the 18 matters that should be included in the partnership agreement.

A
  1. Commencement date
  2. Financial input
  3. Shares in profit
  4. Income profits and capital profits
  5. Losses
  6. Drawings
  7. Place and nature of business
  8. Ownership of assets
  9. Work input
  10. Roles
  11. Decision-making
  12. Partners’ authority
  13. Duration
  14. Retirement
  15. Expulsion
  16. Payment for an outgoing partner’s share
  17. Prohibiting competition after departure
  18. Arbitration/ADR
40
Q

Is a commencement date important in a partnership agreement?

A

It is helpful to make sure the partners know when their mutual rights and obligations commence, but the partnership will only start when the definition in s1 PA 1890 is fulfilled.

41
Q

What aspects of financial input should the partnership agreement include?

A

It should:
1. record each partner’s capital contribution
2. agree how to deal with future increases in capital contributions
3. specify the shares in which the partners will own the partnership’s capital

42
Q

If it is not outlined in the partnership agreement, how does PA 1890 deal with sharing the capital of the business?

A

It states that the partners share equally in the capital of the business unless otherwise agreed.

43
Q

How would courts share the capital of the partnership where partners have made unequal capital contributions?

A

Where partners have made unequal capital contributions, the courts will usually conclude that the partners must have impliedly agreed that they will own the capital in proportion to those contributions, overriding the term implied by PA 1890.

44
Q

What is meant by ‘profit’?

A

What is left from the trading income after deducting expenses.

45
Q

If it is not outlined in the partnership agreement, how does PA 1890 deal with sharing the profits of the business?

A

PA 1890 provides that, unless otherwise agreed, partners are entitled to share equally in the profits.

46
Q

What is the difference between income profits and capital profits?

A

Income profits: profits made from the business’s day-to-day trading

Capital profits: profits made from the business’s capital assets, e.g. selling the office premises at a profit

47
Q

What does PA 1890 state about income profits and capital profits?

A

It does not distinguish between income profits and capital profits. It only states that all profits are shared equally.

48
Q

Why might it be helpful to have an express provision in the partnership agreement to deal with income and capital profits?

A

In case one partner has substantially contributed more capital assets to the partnership than the others - then they may benefit from a higher share of the capital profits than the others.

49
Q

If it is not outlined in the partnership agreement, how does PA 1890 deal with sharing the losses of the business?

A

PA 1890 provides that partners must contribute equally to the partnership’s losses, just as they shared equally in its profits.

50
Q

What is the difference between income losses and capital losses?

A

Income losses: Losses made from day-to-day trading

Capital losses: Losses on capital assets.

51
Q

What does PA 1890 state about income losses and capital losses?

A

PA 1890 makes no distinction between income and capital losses.

52
Q

What are drawings?

A

When partners can actually take their profits out of the firm.

53
Q

What does PA 1890 state about drawings?

A

It says nothing about when partners can take their profits out of the firm. Without this, their profits would remain in the business, hence why an express provision is necessary.

54
Q

What may need to be agreed in the partnership agreement about ownership of assets?

A

Whether any assets used by the partnership remain the property of individual partners and the terms on which the partnership can use them if so.

55
Q

What does PA 1890 say about whether or not a partner has to work in the business?

A

It doesn’t impose any obligation on partners to work in the business.

56
Q

What should be included in the work input section of the partnership agreement?

A
  1. Full-time/part-time
  2. Work days
  3. Prevent from working elsewhere
  4. Holidays
  5. Sickness
  6. Maternity/paternity leave
  7. Family emergencies
57
Q

What does PA 1890 state about variations on the partnership agreement?

A

s19 states that variations to the partnership agreement require the agreement of all the partners.

58
Q

What does PA 1890 provide for about a new partner being brought into the partnership?

A

PA 1890 provides that a new partner cannot be brought into the partnership without the agreement of all the existing partners.

59
Q

What does PA 1890 state about whether changes can be made in the nature of the business?

A

PA 1890 provides that no change may be made in the nature of the business without the consent of all the partners.

60
Q

What does PA 1890 state about how decisions are voted on in a partnership?

A

PA 1890 provides that decisions on “ordinary matters connected with the partnership business” are decided by “simple majority”, e.g. ‘one partner one vote’.

61
Q

If a partner enters into a contract in the name of the firm, who is bound by the contract?

A

If a partner enters into a contract in the name of the firm, all the other partners are bound by the contract as long as the individual partner had authority to enter into the contract.

62
Q

What is the difference between authority and decision-making?

A

Authority: EXTERNAL commitments

Decision-making: INTERNAL decisions

63
Q

What would be good to include in a partnership agreement to avoid the partnership at will issues?

A

It may be best to state that the partnership will continue as long as there are at least two partners remaining, notwithstanding retirement, death or bankruptcy of any partner.

64
Q

What does ‘retirement’ mean in terms of a partnership?

A

It means leaving the partnership.

65
Q

If s26 is not excluded in the partnership agreement, how can a partner retire from the partnership?

A

They can retire from the partnership by giving notice to dissolve it under s26.

66
Q

If s26 is excluded, how could a partner retire?

A

There would need to be a mechanism for partners to retire laid out in the partnership agreement.

67
Q

What does s25 PA 1890 state about expulsion?

A

That a partner cannot be expelled without their consent, unless it is provided for in the agreement.

68
Q

If s33 has been excluded and the partnership carries on after the death or bankruptcy of a partner, what happens to the partner’s share in the business?

A

The agreement should provide for this - usually that the remaining partners should purchase the outgoing partner’s share.

69
Q

What is the general calculation for the outgoing partner’s share value?

A

Usually the value of their share in the partnership’s assets, less their share of its liabilities.

70
Q

What is s42 PA 1890?

A

s42 provides that the outgoing partner (or their estate if they have died) is entitled to paid interest at 5% per annum on the value of their share, or the share of profits deriving from their share. This payment will continue until the parties can reach agreement on what happens to the outgoing partner’s share.

Business and Employment Law (16 decks)

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