Partnership

Question 1

What are the 3 types of business organisations?

Answer 1

1. Sole Trader
2. Partnership
3. Company

Question 2

What is a sole trader?

Answer 2

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

Question 3

What is a General Partnership?

Answer 3

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

Partnership Act 1890, s1

Question 4

What type of liability does a General Partnership have?

Answer 4

unlimited liability due to it being a unincorporated business

Question 5

What is a Limited Partnership?

Answer 5

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)

Question 6

What is a Limited Liability Partnership (LLP)?

Answer 6

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

Question 7

What is a Company?

Answer 7

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

Question 8

What is a Partnership?

Answer 8

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))

Question 9

What are the different types of partners?

Answer 9

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

Question 10

How can a partnership be formed?

Answer 10

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

Question 11

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

Answer 11

Two, and there is no maximum

Question 12

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

Answer 12

1. of sound mind
2. of sufficient age

Question 13

What is a limitation to a partnership being formed?

Answer 13

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

Question 14

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

Answer 14

Everet v Williams (1787)

Question 15

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

Answer 15

Yes, they still can be.

Question 16

What must be in order for a partnership to exist?

Answer 16

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

Question 17

When does a partnership begin?

Answer 17

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

Question 18

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

Answer 18

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)

Question 19

Sharpe v Carswell 1910
Joint Ownership of Property

Answer 19

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.

Question 20

Cox v Coulson 1916
The Sharing of Gross Returns

Answer 20

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.

Question 21

Clark v Jamieson 1909
The Sharing of Gross Returns

Answer 21

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.