Chapter 9 - Sole traders and partnerships

Question 1

Can a partnership be an informal agreement?

Answer 1

Yes.

It can be either a formal or informal arrangement.

Question 2

Define a partnership.

Answer 2

A partnership is “the relation which subsists between persons carrying on a business in common with a view of profit”.

Question 3

How may a partnership change the nature of its business?

Answer 3

Any decision on changing the nature of the partnership’s business must be unanimous.

Question 4

Are partners entitled to remuneration for acting in the partnership business?

Answer 4

No partner is entitled to remuneration for acting in the partnership business.

Question 5

How may a partnership agreement be varied?

Answer 5

The partnership agreement may be varied with the consent of all the partners.

Question 6

How is interest on capital payable in partnerships?

Answer 6

None is paid on capital except by agreement. However, a partner is entitled to 5% interest on advances beyond their original capital.

Question 7

How may new partners be introduced in a partnership?

Answer 7

New partners must only be introduced with the unanimous consent of existing partners.

Question 8

How may expulsion occur in a partnership?

Answer 8

A partner may only be expelled by a majority of votes when the partnership agreement allows; even then, the power must only be used in good faith and for good reason.

Question 9

What happens on dissolution of a partnership?

Answer 9

The authority of the partners after dissolution continues so far as is necessary to wind up the partnership affairs and complete transactions already begun.

On dissolution, any partner can insist on realisation of the firm’s assets, payment of the firm’s debts and distribution of the surplus.

Question 10

How is a capital deficiency treated in a partnership?

Answer 10

The remaining partners share a capital deficiency (what a partner owes but cannot pay back) not as a loss but in ratio to the amounts of capital which they originally contributed to the firm.

Question 11

Partners’ liability and authority.

Answer 11

The firm and the partners will be bound by all partners’ acts for carrying on in the usual way business of the kind carried on by the firm unless:

1. they have no authority to act for the firm in the particular matter; and
2. the person with whom they are dealing either knows that they have no authority or does not know or believe them to be a partner.