5c Partners’ authority and liability

Question 1

What are the two main types of authority that a partner can have?

Answer 1

1. Express - authority specifically given by the other partners.
2. Implied - what a third party would consider a party can do.

Question 2

If a partner enters the business into a contract, who is liable to this contract and what is it known as?

Answer 2

All partners but a third party can choose to only sue an individual partner. This is known as join and several liability.

Question 3

What is holding out?

Answer 3

If a person, by their words or conduct, represent themselves as if they were a partner, they will be liable as if they were.

Question 4

When do new partners become liable to debts?

Answer 4

New partners only become liable to contracts entered after they became a partner.

Question 5

Are retiring partners still liable to debts?

Answer 5

Only liable to contracts entered before they retired as long as they were to give notice for their registration.

Question 6

What kind of notice is given when a partner retires from a firm?

Answer 6

Actual notice - notice given to all businesses they’re trading with.
Constructive notice - posting in the London Gazette.

Question 7

If a partner wants to have no liability when they retire, what can they do to achieve this?

Answer 7

Novation - an external agreement between the partnership and third party.
Indemnity - internal agreement to say remaining partners will repay the retiring partner should they be sued under partnership contracts.