General Partnership Flashcards
What constitutes a partnership?
Persons (humans or legal entities) carrying on a business in common with the intention of making a profit, regardless of actual profit. No formalities required; evidence of agreement to share profits is a presumption of partnership.
Is a written agreement required to form a partnership?
No, but a written agreement is advisable for clarity and evidence. An oral agreement is less reliable.
Is there a requirement for partners to make financial contributions?
No requirement for financial contribution. The minimum number of partners is 2, and there’s no upper limit.
What is meant by actual authority in a partnership?
Actual authority is the authority a partner believes they have based on communications or dealings. It can be express (granted explicitly) or implied (arising from course of dealings).
What is apparent authority?
Apparent authority is when a partner’s act appears to be related to the business of the partnership and thus binds the firm, even if the partner lacks actual authority.
Is a partnership liable for a partner’s torts?
Yes, if committed in the ordinary course of business or with authority from fellow partners.
How is liability for partnership debts structured?
Each partner is personally liable for all debts. Incoming partners are liable for debts incurred after joining, while outgoing partners are liable for debts incurred during their tenure unless a novation agreement is made.
What happens to property bought with partnership funds?
It is deemed partnership property and cannot be used for personal purposes. It is not available to satisfy individual partner’s personal debts.
How are profits and losses shared in a partnership?
Profits and losses are shared equally unless otherwise agreed. The right to share profits is assignable, but the assignee cannot manage or demand profit shares.
How are management decisions made in a partnership?
Each partner has equal management rights unless agreed otherwise. Most decisions require a simple majority, while changes like admitting new partners or changing business nature require a unanimous vote.
What are some key duties of partners?
(i) Render true accounts and full information, (ii) Account for profits from the partnership’s property or name, (iii) Refrain from competing with the partnership, (iv) Fiduciary duty to act in good faith for the partnership’s benefit.
What happens to a partnership upon dissolution?
The business continues only to wind up existing affairs. New business cannot be undertaken. Debts are settled, and remaining funds are distributed among partners based on their capital contributions.
How are partners taxed?
Each partner is liable for income tax on their share of profits, even if the profits are not distributed.
