Partnerships Flashcards
What is required for a partnership to be formed?
Two or more people carrying on a business with a view to profit. There are no filing requirements. They can be formed unintentionally.
The fact that no profit is made does not negate intention to form a partnership
What is prima facie evidence that a partnership was intended?
If a party receives a share of the profits of the business (other than as a wage or a repayment of a debt)
Is agreement to share losses prima facie evidence of an intention to form a partnership?
No
Is a partnership a distinct legal entity with liability?
No, partners are each 100% personally liable for the debts and obligations of the partnership. Liability is joint and several, so a creditor can pursue all or any of the partners for outstanding debt
How are losses and profits shared in partnerships?
If agreement is silent, then equally. If agreement to share profits unequally, losses must also be shared in the same proportions
Who can bind the firm?
Any member of the firm acting with actual (implied or express) or apparent authority can bind the firm.
There will be apparent authority if a partner carries on the usual / expected business of the firm UNLESS, the person with whom they are dealing knew the partner had no authority to act OR did not know or believe they were dealing with a partner
If no authority, only that partner is bound
Will a partner be liable once they retire?
Yes for all liabilities incurred while they were a partner unless the firm agrees to indemnify leaving partner (hold harmless agreement). This has no effect on third party obligations unless a novation agreement is signed.
No for liabilities incurred after they left as long as proper notice was given - actual notice to existing creditors and notice to potential future creditors by an add in the London Gazette
Is someone liable if they hold themselves out to be a partner?
If a person holds themselves out to be a partner or allows another to hold them out as a partner, they will be held liable as if they are a partner to third parties
What classifies as partnership property?
Things brought with partnership money, property belonging to the individuals where it was their intention that it would become partnership property
What is the division of profits and losses in a partnership?
In the absence of something contrary in the partnership agreement profits and losses are shared equally
Do partners have a right to distribution of profits / capital before the partnership is dissolved?
No, unless agreed by the partners
Can rights under a partnership be assigned?
Yes, but that person cannot participate in the management of the firm and they are not liable for the firm’s obligations
Do partners have a right to inspect the books?
Yes, the partnership must keep its books at its place of business and each partner has a right to inspect them
Do partners have a right to remuneration?
Partners are not entitled to remuneration but are able to recover expenses
Which decisions require a unanimous vote by the partners?
Admission of a new partner
A change in the nature of partnership business
An alteration to the partnership agreement
Expel a partner (realistically this is unlikely to happen as they won’t vote for it)
Everything else = majority decision
What are the duties of the partners to eachother?
- Duty to Disclose Information relevant to the partnership
- Duty to Account for Secret Profits (profit from any transaction involving the partnership or use of partnership property)
- Duty to Account for Profits from a competitor business
How can a partnership be terminated?
- Dissolution by expiration (the stated purpose of the partnership has come to an end)
- Dissolution by notice of one of the partners
- Dissolution by Bankruptcy or Death of a partner
- Dissolution if the partnership practice becomes illegal
- Dissolution by Court Order (permanent incapacity, prejudicial conduct, persistent breaches of partnership agreement by a partner)
What is the effect of dissolution on the partner’s authority to bind the firm?
Authority to bind the firm continues in order to wind up the partnership
How will partnership assets be distributed on dissolution?
- Debts (partners personally liable if insufficient)
- Loans made to partnership by partner
- Partner’s capital contributions
- Remaining assets divided up between the partners in the same proportion as profits (equally, unless the agreement states otherwise)
Can a partnership create a floating charge?
No!
What is required for the Partnership letterhead?
Letterhead must disclose the name of the partnership, the name of each member of the partnership, and the partnership’s business address.
What is required for a sole trader letterhead?
their name
business name
business address
