Decision-Making in Partnerships (Partnership Act 1890)

Question 1

How are decisions made in a general partnership under the Partnership Act 1890 (PA 1890)?

Answer 1

The default rule under s. 24 PA 1890 states that decisions must be taken by a majority.

Three exceptions require unanimous agreement:

• Changing the nature of the business (s. 24 PA 1890).
• Introducing a new partner (s. 24 PA 1890).
• Amending the partnership agreement (s. 19 PA 1890).

A partnership agreement can override these default provisions to specify that more or fewer decisions require unanimous approval​.

Question 2

What types of authority do partners have to bind the firm in contracts?

Answer 2

A partner may bind the firm under three types of authority:

• Express actual authority – Specifically granted by the partners (e.g., a partner is responsible for purchasing stock).
• Implied actual authority – Inferred from a partner’s role or established business practices (e.g., if a partner regularly makes sales).
• Apparent authority (s. 5 PA 1890) – Even if authority was not explicitly given, a third party may assume the partner has authority if the act is within the ordinary course of the firm’s business​.

Question 3

When is a firm liable for a partner’s actions?

Answer 3

Under s. 6 PA 1890, the firm is bound if a partner enters a contract in the firm’s name and it is within their actual or apparent authority​.

• If a partner exceeds their authority, they may be personally liable unless the firm ratifies the contract​.

Question 4

Are partners personally liable for partnership debts?

Answer 4

Yes. Under s. 9 PA 1890, partners have joint liability for partnership debts and joint and several liability for wrongful acts (s. 10 PA 1890)​.

Question 5

What happens if a partner commits a wrongful act (e.g., negligence)?

Answer 5

• The firm is liable if the act was committed in the course of business (s. 10 PA 1890).
• The responsible partner must indemnify their fellow partners​.

Question 6

Why should a partnership agreement outline partner roles?

Answer 6

It ensures clarity on decision-making authority, financial limits, and specific responsibilities. A partner exceeding their role may be in breach of contract​.

Question 7

How do partners share profits and losses?

Answer 7

• Default rule (s. 24(1) PA 1890): Partners share profits and losses equally, regardless of investment amounts.
• A partnership agreement can modify this by allocating profits/losses based on capital contributions or effort​.

Question 8

Can a partner be expelled from the partnership?

Answer 8

• Default rule (s. 25 PA 1890): A partner cannot be expelled unless all partners agree.
• Many agreements include an expulsion clause allowing removal for misconduct or breach of duty​.

Question 9

Can a partnership restrict an outgoing partner from competing?

Answer 9

• PA 1890 has no default restriction, but agreements often include restraint of trade clauses.
• To be enforceable, restrictions must be reasonable in duration, geographical area, and scope​.

Question 10

When does a partnership dissolve automatically?

Answer 10

• Death or bankruptcy of a partner (s. 33 PA 1890).
• Expiry of a fixed-term partnership (s. 32(a) PA 1890).
• Notice of dissolution by a partner (s. 32(c) PA 1890)​.
• It should specify in the PA that the partnership continues even if a partner leaves and include buyout provisions​.