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Partnership Flashcards

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1
Q

What are the 3 types of business organisations?

A
  1. Sole Trader
  2. Partnership
  3. Company
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2
Q

What is a sole trader?

A

A sole trader is an individual who carries on a business on an individual basis in his own name or some other name.

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3
Q

What is a General Partnership?

A

This is a relationship which subsists between persons carrying on a business in common with a view of profit.

Partnership Act 1890, s1

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4
Q

What type of liability does a General Partnership have?

A

unlimited liability due to it being a unincorporated business

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5
Q

What is a Limited Partnership?

A

A limited partnership allows for one or more of the partners to have limited liability, provided at least one of the partners has full/unlimited liability.

This is uncommon and no ideal.

Limited Partnerships Act 1907, s4(2)

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6
Q

What is a Limited Liability Partnership (LLP)?

A

Limited liability partnerships are governed by the Limited Liability Partnerships Act 2000

It is a hybrid form of business vehicle, representing a cross between a partnership and a company.

The persons involved in LLPs are called members, rather than partners.

The liability of the members is limited to the amount of capital they have agreed to contribute.

Limited Liability Partnership Act 2000

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7
Q

What is a Company?

A

A company (or corporation) is an artificial legal person. It has separate legal personality distinct from its members (shareholders), directors or employees.

Companies Act 2006

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8
Q

What is a Partnership?

A

A partnership is a relationship which subsists between two or more persons carrying on a business in common with a view of profit (Partnership Act 1890, s 1(1))

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9
Q

What are the different types of partners?

A

General Partner - actively involved in the day to day running of the business

Silent Partner - takes no active part in the running of the business. However, is jointly and severally liable for the debts and contacts of the business (contributes capital to a business in return for an interest in profits generated by the business)

Limited Partner in a Limited Partnership - contributes a specific amount of capital. Liability limited to that amount. Cannot take part in the management of the firm

Salaried Partners - well receive a fixed amount in income. Not a real partner unless he also receives a share of the profits

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10
Q

How can a partnership be formed?

A

A partnership can be constituted verbally or in writing or it may be inferred from the actions/conduct of the parties and in particular the nature of their relationship towards each other. It is important to ascertain the intention of the parties from all the circumstances of the case – but it is not determinative

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11
Q

What is the minimum number of partners required in a partnership?

A

Two, and there is no maximum

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12
Q

What are the requirements of a person to be in a partnership?

A
  1. of sound mind
  2. of sufficient age
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13
Q

What is a limitation to a partnership being formed?

A

Illegality - where a partnership has been formed with the intention of carrying on an illegal business, any partnership agreement will be deemed void

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14
Q

What is the legal authority for a partnership being formed for illegality?

A

Everet v Williams (1787)

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15
Q

If a partner doesn’t believe they are in a partnership, are they?

A

Yes, they still can be.

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16
Q

What must be in order for a partnership to exist?

A

The partners must share a view of profit and intend to share the profit

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17
Q

When does a partnership begin?

A

As soon as the partners start their business activity. The actual agreement may be made earlier or later than that date.

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18
Q

What 3 circumstances do not need to be present to create a partnership? (Section 2)

A
  1. joint ownership of property
  2. the sharing of gross returns
  3. receiving shares of profits
    (a) repayment of debt - s2(3)(a)
    (b) remuneration - s2(3)(b)
    (c) annuity to widow - s2(3)(c)
    (d) loan - s2(3)(d)
    (e) goodwill - s2(3)(e)
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19
Q

Sharpe v Carswell 1910
Joint Ownership of Property

A

Facts: Sharpe’s widow sought to obtain compensation for her husband’s death aboard a fishing vessel. She argued that Carswell was her husband’s employer and therefore that compensation was due under the Workmen’s Compensation Act 1906. Carswell argued that because Sharpe had held shares in the fishing boat, Sharpe was a partner and not an employee.

Held: that mere ownership of shares did not, without more, render the deceased a partner and Mrs Sharpe successfully proved her entitlement to compensation under the Act.

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20
Q

Cox v Coulson 1916
The Sharing of Gross Returns

A

Facts: Coulson agreed with Mill that Mill would put on a play at Coulson’s theatre. Coulson was to have 60% and Mill 40% of the gross box office receipts. Coulson paid the expenses of running the theatre and Mill paid the expenses of putting on the play. During a performance the claimant, who was in the audience, was accidentally shot by one of the actors. The claimant sued Coulson alleging that Coulson was Mill’s partner and was jointly liable with Mill.

Held: Coulson was not Mill’s partner because they merely shared gross box office receipts.

21
Q

Clark v Jamieson 1909
The Sharing of Gross Returns

A

The fact that one person in a fishing business, Clark, was remunerated through a share of gross earnings was not of itself sufficient to establish the existence of a partnership. Importantly, Clark did not contribute to the running capital of the business, nor would he have been liable if the business had made any losses.

22
Q

1890 Act, s4

A

persons who have entered into a partnership are collectively called a firm

23
Q

1890 Act, s5

A
  1. every partner is an agent of the firm
  2. the partners work for the purpose of the business of the partnership
  3. any act a partner does binds them to the firm and the partners unless they don’t have authority (2 situations)
24
Q

What are the types of authority a partner must have? (s5)

A
  1. express - authority is set out by the partnership agreement
  2. implied - the partner will be acting within the usual scope’s of a partner’s powers in the business
  3. ostensible - where a partner represents a business to a third party on the business’ behalf
25
Q

What are the two situations where a partner doesn’t have ostensible authority? (s5)

A
  1. partner has no authority and third party knows, no partnership will be bound
  2. partner has no authority but third party doesn’t know
26
Q

Mercantile Credit Co Ltd v Garrod (1962) (s5)

A

Facts: Parkin and Garrod were partners in a garage business which mainly dealt with letting garages and repairing cars. The partnership agreement expressly precluded the sale of cars. P sold a car which he had no authority to sell to the claimant. When the owner of the car reclaimed the car, the claimant sought to recover the money he had paid for it from Garrod.

Held: It was within the usual authority of persons in a garage business to sell cars and, as the claimant had no knowledge of the restriction on Parkin, he could recover the cost of the car from either partner. So, Garrod was liable.

27
Q

Paterson Brothers v Gladstone (1889) (s5)

A

Facts: the brothers, Robert, William and John, were partners and had decided that William was fully in charge of all financial affairs and would be the only one to sign financial documents. Robert signed the firms name on promissory notes in favour of Gladstone to advance his money, which he used for his own purposes.

Held: the firm was not liable as Gladstone should have known/suspected that a partner of this firm wouldn’t have authority and should have checked with the other partners (brothers)

28
Q

Bank of Scotland v Henry Butcher & Co (2003) (s5)

A

Facts: Mr Hopkins and HB&Co agreed on a joint venture. HB&Co agreed that no partner was to grant a guarantee without joint consent. Guarantee was signed by 4/13 of partners. The joint venture was signed by 1 partner ‘ on behalf of HB&Co’

Held: the guarantee was in the course of business, therefore binding with the bank.

29
Q

JJ Coughlan Ltd v Ruparelia (2003) (s5)

A

Facts: A solicitor of a legal firm was party to a finance agreement

Held: firm was not liable as it couldn’t see that the 3rd party would believe that the solicitor was offering a serious agreement

30
Q

1890 Act, s6

A

an act or document relating to the business of the firm done or signed in the firm name by any person authorised to do so is binding on the firm and the partners.

31
Q

1890 Act, s7

A

where one partner uses the credit of the firm for a purpose not apparently connected with its ordinary business, the firm is not bound, unless he is in fact authorised

32
Q

1890 Act, s8

A

if partners agree to restrict the powers of one or several of them to bind the firm, it is binding on the partners and on third parties who have notice, but not on any third party who does not have notice

33
Q

1890 Act, s9

A

every partner in a firm is liable jointly with the other partners, and in Scotland severally also, for all debts and obligations of the firm while he is partner

also states that his estate continues to be liable even after death and he is liable even after retirement

34
Q

Bagel v Miller (1903) (s9)

A

Facts: B supplied good to M’s partnership. Some goods where delivered then M died. M’s estate argued that he was only liable for the goods that was delivered before his death

Held: every partner is liable jointly with the other partners for all debits and obligations of the firm incurred while he is a partner

35
Q

Who can a creditor sue in the partnership? (s9)

A

joint and several liability

can choose to sue:
1. one partner
2. some partners
3. all partners

for the recovery of debts due to them

36
Q

1890 Act, s10-13

A

each partner is vicariously liable for the DELICTS of each partner if acts are done within the usual course of business

37
Q

Dubai Aluminium v Salaam (2003) (s10-13)

A

Facts: a partner of S dishonestly assisted in a fraud against DA which resulted in $50m in a fake agreement. DA sued S on basis of the partner was acting as a partner when the fraud took place, not that he was acting on his own accord.

Held: the partner was not acting in the ‘ordinary course of business’ and therefore the firm was not liable. The courts used the ‘sufficiently close connection’ test

38
Q

1890 Act, s14

A

‘holding out’ - everyone who represents himself or allows himself to be so represented as a partner will be liable to those who have relied on such a representation

39
Q

Martyn v Gray (1863) (s14)

A

Facts: Gray went to Cornwall to discuss the possibility of investing in a tin mine belonging to X. Nothing came of the discussions, but while Gray was in Cornwall he was introduced by X to Martyn as “a gentleman down from London, a man of capital”. Martyn later gave X credit believing he was in partnership with Gray

Held: The introduction amounted to a representation that Gray was in partnership with X, and so Gray was liable for the debt incurred subsequent to the introduction. He should have made the true position clear by correcting the impression made.

40
Q

1890 Act, s15

A

admissions or representations made by any partner concerning the partnership affairs, and in the ordinary course of business, is evidence against the firm

41
Q

1890 Act, s16

A

notice to any partner who habitually acts in the partnership business of any matter relating to partnership affairs operates as notice to the firm (except in the case of a fraud on the firm committed by or with the consent of that partner)

42
Q

1890 Act, s17

A

(1) - incoming - A person who is admitted as a partner into an existing firm does not thereby become liable to the creditors of the firm for anything done before he became a partner

(2) - outgoing - A partner who retires from a firm does not thereby cease to be liable for partnership debts or obligations incurred before his retirement

(3) - it is possible to discharge retiring partner by express agreement

43
Q

1890 Act, s36

A

3rd party to be notified of change otherwise he can treat all apparent members of old firm as partners still

The Edinburgh Gazette is ‘proper notice’

44
Q

1890 Act, s32-34

A

dissolution without a court order the partnership will automatically end with:

  1. The expiry of a fixed term or the completion of a specific enterprise
  2. One of the partners gives notice (unless the partnership agreement excludes this right)
  3. Death or bankruptcy of a partner (the partnership agreement will usually make provision for the partnership to continue if a partner should die)
  4. Where continuation of the partnership would be illegal
45
Q

Hudgell, Yeates and Co v Watson (1978) (s34)

A

Facts: Practising solicitors are required by law to have a practising certificate. One of the partners in a firm of solicitors forgot to renew his certificate which meant that it was illegal for him to practice.

Held: The failure to renew the practising certificate brought the partnership to an end, although a new partnership continued between the other two members.

46
Q

1890 Act, s35

A

dissolution by a court order

  1. Partner has mental disorder or permanent incapacity
  2. Partner engages in activity prejudicial to the business
  3. Partner wilfully or persistently breaches the partnership agreement
  4. Partner conducts himself in a way that is no longer reasonably practicable for the others to carry on in business with him
  5. Business can only be carried on at a loss
  6. It is just and equitable to do so
47
Q

1890 Act, s38 & s39

A

Consequences of Dissolution

the partners typically have continued authority to wind up the firm’s business - s38

once all the partnership’s business has been concluded and debts settled, any surplus assets are shared amongst the partners - s39

48
Q

Describe an LLP

A

A limited liability partnership (LLP) is a corporate body which combines the features of a traditional partnership with a company.

An LLP can be described as a hybrid, between a company limited by shares and a partnership.

LLPs are governed by the Limited Liability Partnerships Act 2000

the LLP itself does not have limited liability, the partners do

49
Q

What are the advantages/disadvantages of an LLP?

A

Advantages:
1. Substantial protection of members’ personal assets
2. Internal flexibility regarding management and structure
3. Tax transparency and benefits

Disadvantages:
1. Limited financial privacy, given the filing requirements

Business and Corporate law (10 decks)

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