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Business Law > Partnerships > Flashcards

Partnerships Flashcards

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1
Q

What are incorporated businesses?

A

Corporate bodies

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2
Q

What are the advantages of a sole trader?

A
  • control
  • profit retention
  • private data
  • specialist
  • personal
  • no legal requirements
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3
Q

What are the disadvantages of a sole trader?

A
  • liability
  • finance / expansion
  • economies of scale
  • decision making
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4
Q

Arguments for a sole trader admitting a partner?

A
  • access to new funding
  • access to expertise
  • access to new markets
  • less responsibility (time, liability, decision making)
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5
Q

Arguments against a sole trader not admitting a partner?

A
  • increased formality and disclosure

- profit share

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6
Q

What is the definition of a partnership?

A

“Partnership is the relation which subsists between persons carrying on a business in common with a view of profit.”

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7
Q

Types of partnerships

What is a general partnership? (Partnership Act 1890)

A
  • general partners
  • all of the partners share equal rights & responsibilities in the management of the business
  • each individual partner assumes full responsibility for all of the business’s debts and obligations
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8
Q

Types of partnerships

What is a Limited Partnership (Limited Partnership Act 1907)?

A

general partners (at least 1)

  • full personal liability for the business’s debts and obligations
  • has / have right to manage and control the business

limited partners

  • his / her liability is limited to his / her investment in the business
  • does not participate in the day-to-day management of the business
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9
Q

Types of Partnerships

What is a Limited Liability Partnership (Limited Liability Partnership Act 2000)?

A
  • all partners have limited liability

- combines characteristics of partnerships and corporations

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10
Q

What are the main features of a partnership?

A
  • Contractual relationship (relationship of utmost good faith)
  • Separate Legal Persona (in Scotland)
  • At least two individuals, no maximum
  • Main purpose is to make profit
  • Members of partnership contribute: money, time, skills
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11
Q

What is a separate Legal Persona?

A
  • can enter into contracts with third parties in its own right
  • can raise a legal action in its own name
  • it can be sued by a third party in the event of a legal dispute
  • it can own property
  • it can commit delicts

-BUT not elsewhere in the UK (A partnership is not a persona in law; a partnership is an aggregate of its members.)

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12
Q

Who are partners in a partnership an agents of?

A

-the business and each other

The partner bind the firm into a contract with a third party.

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13
Q

Creation of a Partnership

A
  • members do not have to comply with any formal legal requirements
  • the partnership does not have to be registered with the Registrar of Companies
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14
Q

Creation of a partnership

Types of contract

A
  • expressed (written or verbal) or
  • implied by the actions / behaviour of the parties / members
  • by holding out _ Hosie v Waddell (1866)
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15
Q

Creation of a Partnership

What happens if there is no written agreement?

A

-the court can use the rules contained in the Partnership Act 1890 to resolve any problem, dispute

BUT … Partnership Act 1890 only provides guidelines → the partners are free to ignore it & the courts have to respect this decision

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16
Q

What details can be included in Partnership agreements?

A
  • nature of the business
  • the name of the business
  • provisions for disputes between partners
  • capital to be contributed by each partner
  • interest* to be paid on capital before the profits are shared
  • salaries to be paid to partners
  • profit sharing ratios
  • interest* to be charged on partners’ drawings
  • limits on drawings
  • admission of new partners
  • retirement of existing partners

*if any

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17
Q

Naming a partnership

A

-may use the words “and Company” / “and Co”
-may trade under the names of the individual partners
OR
may trade under a collective name

The names and addresses of the partners must be displayed

on the business premises AND
on the firm’s letters and business documents

-is not required to register the name but subject to disclosure requirements of S.1200-S.1208 of the Companies Act 2006 if the partnership uses a name other than the surnames of each partner

18
Q

What are partnerships not aloud to be named as?

A

prohibited to use “limited” / “Ltd”

19
Q

Does a partnership exist?

How do you know if someone is a partner of a business?

A

IF an individual is entitled to a share of the profits of the business, this may be used in evidence to prove that he is a partner in a firm

20
Q

Does a Partnership exist?

A person is not regarded as a partner when?

A

1) owning property jointly or in common does not itself create a partnership, even where profits from its use are shared
2) sharing of gross returns does not itself create a partnership
3) parties may share profits without being partners

-a loan provider where interest varies with profit
employees
-a widow or dependent of a deceased partner
-a seller of goodwill

21
Q

Fiduciary duties (relationship of trust) (S.28-30)

The duty to disclose (S.28)

A
  • keep proper accounts

- inform fellow partners about matters which may affect the firm

22
Q

Fiduciary duties (relationship of trust) (S.28-30)

The duty to account (S.29)

A

inform fellow partners of any profit made or benefit received as a result of his position as a partner or as result of using the firm’s property / assets, name, contacts, business connections

23
Q

Fiduciary duties (relationship of trust) (S.28-30)

The duty not to compete (S.30)

A

profit made by competing business (without permission by his fellow partners) have to be handed over to the firm

24
Q

Rights & Duties (S.24)

Unless the partners have a different agreement among themselves what must all partners do?

A
  • can expect to share equally in the profits that a partnership makes
  • are expected to contribute equally towards any losses that the firm may suffer
  • are expected to share equally the partnership funds or capital
  • are entitled to receive interest on money loaned to the firm (5%)
  • have the right to participate in the running of the partnership
  • have the right to be indemnified by the firm for any liabilities incurred or payments made in the course of the firm’s business
  • must first agree before any new partner can join the partnership
25
Q

Rights & Duties (S.24)

What happens when a new partner is admitted?

A
  • must first agree before any new partner can join the partnership
  • the partners can reach a decision by majority vote … BUT … any changes to the nature of the partnership agreement must be agreed by all of the partners
26
Q

Rights & Duties (S.24)

Partnership books

A
  • need to be kept at the partnership’s head office

- all partners are entitled to have access to and inspect & copy of them

27
Q

Expulsion of a partner (S.25)

A
  • generally, majority partners are not permitted to expel one of their fellow partner from the firm UNLESS
  • this power is part of the contract of partnership (partnership agreement)
28
Q

What are the types of liability of the partners?

A

-Joint and Several Liability / Unlimited & equal liability …

BUT …

  • Vicarious liability of the firm for delicts / negligent acts committed by the partners while acting in the course of the partnership business
  • partner injures third party / damage, loss is caused to third party → the firm is liable
  • partner causes loss or injury to a fellow partner → the firm is not liable
29
Q

Liability of the partners

Partnership by holding out

A
  • IF individual claims to be a partner in a firm or he allows third parties to believe that he is a partner → he will be liable to any creditor who has loaned the firm money on the strength of these claims
  • IF the partnership let third parties believe that an individual is a partner → the partnership will be liable for any debts incurred or wrongful act committed by the false partner … EXCEPT … the third party knows ….
30
Q

Liability of the partners (S.17)

Incoming Partner

A

-Liability of an incoming partner for debts or wrongful act

not responsible for any … occurred before their involvement in the firm

31
Q

Liability of the partners (S.17)

Liability of a retired partner

A

-Liability of a retired partner for debts or wrongful acts
partner who has left the firm will cease to have any responsibility for business liabilities after his departure;

… BUT…

  • he has to publicise his departure from the firm in the Edinburgh Gazette (giving proper notice to third parties of his changed role in relation to the business)
  • has to ensure that individual notice is given to existing business partners of the partnership
  • owes no responsibility to someone who had neither dealing with the partnership nor previous knowledge of his / her membership
  • continue to be liable for … occurred during their involvement with the firm
32
Q

Termination of a partnership (S. 32 to 35)

A

1) End of fixed term
continuing in business → partnership at will

2) Goal accomplished

3) Notice given / Due notice
-must be written if the partnership agreement is in the form of a deed
verbally
-notice will take effect when all partners have knowledge of it
-no particular period of notice is required

4) By mutual consent

33
Q

Termination of a partnership (S. 32 to 35)

Continued

A

5) Death of a partner
6) Bankruptcy of a partner
7) Circumstances that make the partnership illegal
8) Private debt
9) Order for dissolution by the court

  • a partner suffers from some mental disorder or insanity / permanent incapacity
  • a partner persistently commits a breach of the partnership agreement

-the business can only be carried on at a loss etc.
when it is just and equitable

10) The appointment of a judicial factor
11) Rescinded on the grounds of inducement by fraud or misrepresentation

34
Q

Dissolution of notice

A

A dissolution by notice may be prevented by the provision of the partnership agreement. e.g. Moss v Elphick (1910) where the partnership agreement stated that dissolution could only be occur if all the partners were in agreement.

35
Q

Termination of a partnership

Authority of the partners after the termination of partnership

A

partners can’t enter into contracts with third parties

BUT … residual authority (limited!) in order to conclude the affairs of the firm

36
Q

Termination of a partnership

Treatment of Assets

A

Partnership property and assets (disposed: sold to external parties or taken by partner(s)) used to

  • pay off the firm’s debts & liabilities
  • pay back any loan / advances (amount above and beyond the capital) provided by a partner
  • pay back the contribution of the partners towards the firm’s capital
  • anything remains of the firm’s capital or assets shared between the partners according to the rules by which they share profits
37
Q

Termination of a partnership

Treatment of Assets

What happens if assets are insufficient?

A

IF the assets are insufficient to meet debts, partners’ advances and capital repayments, the deficiency has to be made good

  • out of any profits held back from previous years
  • out of Partners’ capital
  • by the partners individually in the proportion to which they were entitled to share in profits
38
Q

Termination of a partnership

Rights of outgoing partner (S.42)

A
  • right will arise where the surviving partners
  • have continued to trade using the assets and capital of the business &
  • have failed to make a final settlement of the accounts
39
Q

Termination of a partnership

Rights of outgoing partner (S.42)

What does the partner receive?

A
  • a share of any profits attributable to his partnership share or
  • receive interest at the annual rate of 5% in respect of his share
40
Q

The Scottish and English Law Commissions’ Joint Report on Partnership Law (November 2003)

A

new Partnership Act was recommended to replace the existing 1890 Act – not implemented

proposed changes

  • having the same general rules governing partnerships in Scotland, England and Wales - partnerships in
  • England and Wales would become legal entities – not implemented
  • partnerships would not automatically be wound up when there is a change of partners – not implemented
  • remove maximum number of members (20 members) – adopted

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