Partnership Flashcards
Ten partners are in a partnership without a written agreement. The partnership is a firm of accountants.
The partnership is not doing very well financially and is two months late with rent. The finance partner signed the lease agreement with the landlord five years ago on behalf of the partnership.
The senior partner will retire in two months’ time.
Which one of the following statements represents the correct position with regards to the liability of the partners for the overdue rent?
(a) Only the finance partner will be liable as they signed the lease.
(b)
The partnership is liable for the overdue rent.
(c)
All ten of the partners are jointly and severally liable for the rent.
(d)
All ten of the partners are jointly liable for the rent.
(e)
The senior partner will not be liable for the overdue rent once they retire in two months.
(d) All ten of the partners are jointly liable for the rent.
Which one of the following is correct in relation to the tax treatment of partnerships?
(a)
Partners in a partnership are not liable to any tax in relation to the profits and gains of the partnership. The partnership itself is liable to pay corporation tax.
(b)
Partners in a partnership are liable to pay income tax and capital gains tax on their share of the income and capital gains of the partnership. The partnership itself is also liable to pay income and capital gains tax.
(c)
Partners in a partnership are liable to pay income tax and capital gains tax on their share of the income and capital gains of the partnership. Only the partners therefore need to submit tax returns.
(d)
Partners in a partnership are liable to pay income tax and capital gains tax on their share of the income and capital gains of the partnership. The partnership itself is not liable to pay tax.
(e)
Partners in a partnership are liable to pay income tax and capital gains tax on their share of the income and capital gains of the partnership. The partnership itself is also liable to pay corporation tax.
(d) Partners in a partnership are liable to pay income tax and capital gains tax on their share of the income and capital gains of the partnership. The partnership itself is not liable to pay tax.
Explanation: A partnership is not a separate legal entity and therefore does not pay tax.
A firm of surveyors is seeking your advice in relation to a contract entered into by one of the partners. The contract was for a building project and the managing partner had agreed that the partners would do the work for £5,000. The remaining partners are upset as they believe that the managing partner significantly under-quoted for this project and that in fact they should be charging at least £7,000.
Work has not yet started on this contract since the remaining partners are seeking to avoid the contract on the basis that the managing partner was not authorised to enter into it. The written partnership agreement requires that all quotes for work should be signed off by at least two partners.
Which one of the following is the best advice to the partnership?
(a)
The partnership will be bound by the contract since the act is for carrying on business of the kind carried on by the firm, in the usual way. There does not appear to be anything on the facts to indicate that the customer knew that the managing partner was not authorised to enter into the contract on behalf of the firm.
(b)
The partnership will be bound by the contract since the other partners, in allowing the managing partner to give the quote, will be said to have ratified the partner’s act.
(c)
The partnership will not be bound by the contract since the written partnership agreement requires that all quotes for work should be signed off by at least two partners. The managing partner was therefore acting in breach of the partnership agreement.
(a) The partnership will be bound by the contract since the act is for carrying on business of the kind carried on by the firm, in the usual way. There does not appear to be anything on the facts to indicate that the customer knew that the managing partner was not authorised to enter into the contract on behalf of the firm.
Three individuals (Partner X, Partner Y and Partner Z) began trading together as a partnership 12 months ago. The partners have never signed a partnership agreement.
Partner X contributed 55% of the start up capital; partner Y contributed 40% of the start up capital and Partner C contributed 5% of the start up capital.
Which of the following statements represents the correct position with regards to the rights to the profits of the partnership and a salary for each partner under the default provisions of the Partnership Act 1890?
(a)
The three partners are entitled to a profit share in the proportion to their capital investments; none of the partners are entitled to a salary.
(b)
All three partners are entitled to an equal share of the profits; all three partners are entitled to receive a salary in the proportion of their capital investments.
(c)
The three partners are entitled to a profit share in the proportion to their capital investments; and a salary in the proportion to their capital investments.
(d)
All three partners are entitled to an equal share of the profits; none of the partners are entitled to a salary.
(e)
None of the partners are entitled to a share of the profits; all of the partners are entitled to a an equal salary.
(d) All three partners are entitled to an equal share of the profits; none of the partners are entitled to a salary.
Three individuals have started a business together and have been working in partnership for six months. They have not entered into any formal partnership agreement. Two of the individuals would like to introduce a new partner to the business, but the third individual has reservations about the new proposed partner.
Which of the following is the correct advice as to the appointment of the new partner?
(a)
In the absence of agreement, the appointment of a new partner requires unanimity therefore two of the partners cannot appoint the proposed new partner without the agreement of the third existing partner.
(b)
In the absence of agreement, it is not possible to introduce a new partner to an existing partnership. The effect of this will be that the existing partnership is dissolved, and a new partnership will arise automatically once the new individual commences working with the other partners.
(c)
In the absence of agreement, the appointment of a new partner requires a majority vote therefore two of the partners can appoint the proposed new partner without the agreement of the third partner.
(a) In the absence of agreement, the appointment of a new partner requires unanimity therefore two of the partners cannot appoint the proposed new partner without the agreement of the third existing partner.
Five partners are in a partnership with no formal partnership agreement. Four of the partners are unhappy with the fifth partner and wish to remove the partner.
Which of the following statements represents the correct advice to the partners about removal of the fifth partner?
(a) It will not be possible to remove the fifth partner without unanimous consent.
(b)
Once removed, the partnership will continue without the fifth partner.
(c)
Once removed, the partnership will continue without the fifth partner, provided that the partners appoint a fifth partner to take the place of the expelled partner.
(d)
It will be possible for the four partners to remove the fifth partner because they represent a majority.
(e)
Once the partner leaves, they will have no claim on the partnership assets.
(a) It will not be possible to remove the fifth partner without unanimous consent.
What are the four ways through which a partnership can be dissolved?
(1) automatic dissolution (expiry of fixed term, completion of specific venture, death/bankruptcy of any partner)
(2) dissolution of partnership by notice from any other partner
(3) dissolution if partnership business has become unlawful
(4) dissolution by court (last resort)
When are LLPs obliged to file to Companies House after they have incorporated? (continued registration regime)
(1) Change of name
(2) Change of registered office
(3) Changes in membership
(4) Creation of charge
(5) Annual confirmation statement
(6) Accounts
When will an LLP member cease to be a member?
(1) Death
(2) Agreement with other members
(3) Giving notice to other members
(4) Dissolution if member is body corporate
Two months ago a couple set up an LLP through which to operate their business. They had been trading as a traditional partnership before the incorporation of the LLP.
Which of the following best describes the change in taxation?
(a)
The partners will pay income tax on their dividends from the LLP instead of their earning from the partnership.
(b)
The LLP will pay corporation tax and the partners will continue to pay income tax.
(c)
There is no change in taxation; the LLP is treated as a partnership for taxation purposes.
(d)
Both the LLP and the partners will pay income tax.
(e)
The partners will now need to pay corporation tax, instead of income tax.
(c) There is no change in taxation; the LLP is treated as a partnership for taxation purposes.
Two individuals want to start a business together and their main concern is to limit their personal liability. They are choosing between a traditional partnership and an LLP. They are both going to be active in the running of the business. They do not want to spend a lot of money in the set up of the business but they need the ability to raise some finance in the future.
Which of the following represents the best advice to this client for their business?
(a)
The individuals should trade as a partnership because it will be cheaper.
(b)
The individuals should incorporate an LLP because it will be cheaper than starting a traditional partnership.
(c)
The individuals should incorporate an LLP because it is not necessary to have a partnership agreement, which will save costs.
(d)
The individuals should trade as a partnership as they will have limited liability for debts.
(e)
The individuals should incorporate an LLP because they will enjoy limited liability.
(e) The individuals should incorporate an LLP because they will enjoy limited liability.
Which one of the following is generally seen as an advantage of an LLP when compared to a private limited company?
(a)
There is little set statutory procedure to follow for an LLP when the partners are making decisions and in day to day management.
(b)
LLPs are capable of creating a floating charge over the assets of the LLP.
(c)
LLPs are not required to file accounts at Companies House.
(d)
An LLP has a separate legal personality from its members.
(e)
Partners in an LLP have limited liability.
(a) There is little set statutory procedure to follow for an LLP when the partners are making decisions and in day to day management.
