Business - Partnerships Flashcards
What is the default decision-making rule in a partnership according to s 24 PA 1890?
All decisions must be taken by majority, with three exceptions.
What are the exceptions to the majority decision rule in partnerships as per s 24 PA 1890? What decisions must be made unanimously?
- Changing the nature of the business
- Expelling a partner (subject to contrary agreement)
- Introducing a new partner (subject to contrary agreement)
- Altering partnership agreement
Under the PA 1890, how do partners share capital and profits?
Partners share equally in the capital and profits of the business.
What is the default position regarding remuneration for partners under PA 1890?
A partner is not entitled to remuneration (i.e., a salary).
What must a partner do if they receive profits from a competing business during the partnership?
The other partner must account for and pay over to the firm all profits received.
Under what conditions may a majority of partners expel another partner according to s 25 PA 1890?
No majority may expel another partner unless expressly agreed, usually in writing.
When is a partnership dissolved under the PA 1890?
- When a partner retires
- On expiry of a fixed term
- By the death or bankruptcy of any partners
- By a court order
What is required for partners to continue in business after one retires?
The partnership agreement must provide for this.
What can partners do if they want the partnership dissolved for just and equitable reasons?
They can apply to the court under s 35 PA 1890.
What are some reasons a court may find just and equitable to dissolve a partnership?
- A partner is permanently incapable of performing their part
- A partner’s conduct is prejudicial to the business
- A partner persistently breaches the partnership agreement
- The partnership can only be carried on at a loss
What is the consequence of automatic dissolution of a partnership?
The partnership must end, assets must be sold, and the outgoing partner receives their share.
Under PA 1890, how may contracts be made in a partnership?
Contracts may be made by all partners acting together or by just one partner.
What is actual authority in the context of partnership contracts?
The firm is bound by contracts made by partners if their actions were authorized.
What are the types of actual authority a partner may have?
- Express actual authority
- Implied actual authority
What is apparent authority in partnerships ?
The firm may be liable for unauthorized actions that appear authorized to outsiders.
What are the four conditions under which a firm is liable for a partner’s actions according to s 5 PA 1890?
- The transaction relates to the business type
- The partner is expected to have authority
- The other party did not know of authority limitations
- The other party deals with someone they believe to be a partner
What happens to a partner’s liability after leaving the partnership?
They remain liable for debts incurred while a partner unless released by a novation agreement.
What does s 36 PA 1890 require regarding notice when a partner leaves?
- Actual notice must be given to anyone the firm has dealt with before and
- A notice must be placed in the London Gazette (or equivalent) for those who have not previously dealt with the firm.
Is notice required for a partner’s death or bankruptcy?
No notice is required for death or bankruptcy.
How can a retiring partner be protected from liability for existing debts
- Deed of release from willing creditors
A release of the outgoing partner from any outstanding
debt/liability
- Novation agreements (from willing creditors)
An agreement between creditor, partnership before
retirement, and partnership after retirement.
Consideration/deed is required to be valid/binding
The newly constituted partnership replaces the old
one for debt/liability
- Indemnity from continuing partners
Agreement between outgoing and continuing partners
Not binding on third parties – still liable but can seek
an indemnity from continuing partners.
What are Partner’s duties to each other
Partners owe each other a duty of good faith.
There are 3 fiduciary duties under the PA:
To provide true accounts and full information on partnership
matters
To account for (i.e. reimburse) profits derived from position
as partner
To account for profits from a competing business
Distribution of partnership assets after dissolution
Partnership assets must be distributed as follows:
- To repay debts owed to outside creditors
- To repay loans made by the partners to the firm
- To return the partners contributions.
- Any remaining sum will be distributed to the partners. If money is insufficient each partner must contribute their share of the loss.
What documents are required to register an LLP at the CH
- The name of the LLP, which must end in LLP or the words Limited Liability Partnership.
- The Location and address of the LLP’s registered office
- The names and address of the LLP’s members and who will serve as the designated members.
- Details of people with significant control over the LLP.
How are profits and assets shared in LLPs
Members share the profits and assets of the LLP equally.
