Business Law and Practice - Management, Duties and Termination of Partnership

Question 1

Management of Partnership

Answer 1

Default rule under Partnership Act is every partner has equal right to manage and most decisions made by a simple majority vote (one vote per partner unless partnership agreement stipulates voting power)

Question 2

Unanimous vote required

Answer 2

1. Admitting new partner
2. Changing nature of partnership business
3. Amending partnership agreement

Question 3

Duties

Answer 3

1. Partners owe common law duty to act in good faith in dealings with eachother and partnership and to exercise their powers for the benefit of the partnership as a whole (fiduciary duty)
2. Duty to disclose information on all things affecting the partnership to any partner or their legal representative (duty to disclose information)
3. Duty to account for any profit or benefit obtained without the consent of the other partners from any transaction concerning the partnership or the use of partnership property or name (duty to account for secret profits)

• This includes any profits made by carrying on business in competition with that of the partnership

Question 4

Termination of Partnerships

Answer 4

Two types:

1. Partnership for specific term or undertaking

Terminates when term expires or undertaking is completed

2. Partnership at will

Dissolved by any partner giving notice to others - partnership dissolved on date set out in notice or from the date of the communication of notice

Automatically dissolved by any partner’s death or bankruptcy

Partnership dissolved if an event occurs which makes it unlawful for the business of the partnership to be carried on

Court has power to dissolve any partnership if:

• A partner does not have mental capacity;
• A partner becomes permanently incapacitated;
• A partner has been guilty of prejudicial conduct;
• Partner wilfully or persistently breaches the partnership agreement;
• Business can only be carried on at a loss;
• Just and equitable to do so

Question 5

Effect of Dissolution

Answer 5

Business continues and partners can still bind partnership

Partners must wind up business and pay off debts

Distribution of leftover money used first to pay creditors, then to repay partners’ loans, then repay partners’ capital then distributed in accordance with agreement (equally if no agreement)

If partnership made a loss then each partner must contribute his share of the loss as per the partnership agreement (or equally if no agreement)

Question 6

Partnership Taxation

Answer 6

Each partner is taxed on their share of partnership profits regardless of whether profits distributed - tax paid at their income tax rate