General Partnerships Flashcards
What governs General Partnerships?
Partnership Act 1890 - two or more persons carrying out business in common with a view to profit
Are any formalities required?
No
What is prima facie evidence of a partnership?
Receipt of profits - does not apply to losses
What circumstances do not create a partnership?
Mere fact that two or more people jointly own property does not in itself create a partnership, even if they agree to share profits from the property
Is a contribution required?
No
Is there a limit on the number of partners?
No
What two types of authority are there?
Actual
Apparent (ostensible)
What is actual authority?
A firm will be bound by any act:
Done in a way showing an intention to bind the firm,
By any person actually authorised by the firm to undertake the act
(Courts also recognise implied actual authority if the partners have allowed a partner without express actual authority to regularly do an act.)
What is apparent authority?
The act of a partner carrying on in the usual way of business of the kind carried out by the firm will bind the firm and the other partners unless:
The partner had no authority to act; and
The person with whom the partner was dealing either: (1) knew the partner had no authority to act, or (2) did not know or believe the person they were dealing with was a partner
Is notice from a third party valid?
If a third party gives notice to a partner who habitually acts in the partnership business, the notice will be considered to be notice to the firm
What happens if the partner doesn’t have actual or apparent authority?
The partner is personally liable to the third party
How does liability for debts and wrongdoing operate?
Unlimited personal liability
Liability is joint
How does liability operate in relation to an incoming partner?
Not liable to creditors for anything entered into before joining the partnership
How does liability operate in relation to outgoing partners before retirement?
If a partner leaves a firm and the firm continues, the outgoing/retiring partner remains liable for any debts or obligations incurred before the partner leaves
The retiring partner and the continuing firm can agree that the partner will not be liable to the firm for these obligations
How does liability operate in relation to outgoing partners after retirement?
If a person deals with a firm after a change in its membership, they are entitled to treat all apparent partners of the old firm as still being partners of the firm until notice of the change has been received
Must give notice of retirement — Actual notice should be given to existing creditors and notice by way of advertisement in the London Gazette is required for new customers
What is holding out?
A person who holds themselves out as a partner of a firm even though the person is not actually a partner, may be held liable as if they were a partner to any third party who has given credit to the partnership on the strength of the holding out
Can apply to retiring partners if they don’t give sufficient notice
What is partnership property?
Unless a contrary intention appears, property bought with money belonging to the firm is partnership property, and property titled in the firm name is partnership property
It cannot be used to satisfy an individual partners debt
How does profit operate?
Equally and not until dissolution unless agreed otherwise
Can profits be assigned?
Yes
What is the default position regarding management?
One partner = one vote
Partners are free to agree otherwise
What are the individual partners’ duties?
Fiduciary duty to each other under common law
Duty to account for secret profits
Duty to disclose information
Dissolution without court involvement
By expiration
By notice
Bankruptcy, death, or charge
Illegality
Dissolution with court involvement
Permanent Incapacity — Provisions of the Mental Capacity Act 2005
Prejudicial Conduct
Wilful or persistent breaches of Partnership Agreement
When Business can be carried on only at a Loss
Just and equitable basis
How does dissolution effect partner authority?
After dissolution of a partnership, the authority of each partner to bind the firm, and the other rights and obligations of the partners, will continue—not withstanding the dissolution—in order to wind up the partnership and to complete transactions begun but unfinished at the time of the dissolution
How does dissolution effect distribution of partnership property?
After dissolution, partnership assets will first be used to pay off the partnership’s debts
If assets still remain after repaying contributions, they will be divided among the partners in the same proportion as profits
Note: Partnership Act states that losses shall be paid first out of profits, next out of capital, and lastly, if necessary, by the partners individually in the proportion in which they were entitled to share profits
How are general partnerships taxed?
Taxation of partners is covered by the Income Tax Act 2007
Each individual partner must include their personal income of their share of the profit made by the partnership, whether or not the profit was distributed to the partner
