Partnerships

Question 1

What is required for a partnership to be formed?

Answer 1

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

Question 2

What is prima facie evidence that a partnership was intended?

Answer 2

If a party receives a share of the profits of the business (other than as a wage or a repayment of a debt)

Question 3

Is agreement to share losses prima facie evidence of an intention to form a partnership?

Answer 3

No

Question 4

Is a partnership a distinct legal entity with liability?

Answer 4

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

Question 5

How are losses and profits shared in partnerships?

Answer 5

If agreement is silent, then equally. If agreement to share profits unequally, losses must also be shared in the same proportions

Question 6

Who can bind the firm?

Answer 6

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

Question 7

Will a partner be liable once they retire?

Answer 7

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

Question 8

Is someone liable if they hold themselves out to be a partner?

Answer 8

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

Question 9

What classifies as partnership property?

Answer 9

Things brought with partnership money, property belonging to the individuals where it was their intention that it would become partnership property

Question 10

What is the division of profits and losses in a partnership?

Answer 10

In the absence of something contrary in the partnership agreement profits and losses are shared equally

Question 11

Do partners have a right to distribution of profits / capital before the partnership is dissolved?

Answer 11

No, unless agreed by the partners

Question 12

Can rights under a partnership be assigned?

Answer 12

Yes, but that person cannot participate in the management of the firm and they are not liable for the firm’s obligations

Question 13

Do partners have a right to inspect the books?

Answer 13

Yes, the partnership must keep its books at its place of business and each partner has a right to inspect them

Question 14

Do partners have a right to remuneration?

Answer 14

Partners are not entitled to remuneration but are able to recover expenses

Question 15

Which decisions require a unanimous vote by the partners?

Answer 15

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

Question 16

What are the duties of the partners to eachother?

Answer 16

1. Duty to Disclose Information relevant to the partnership
2. Duty to Account for Secret Profits (profit from any transaction involving the partnership or use of partnership property)
3. Duty to Account for Profits from a competitor business

Question 17

How can a partnership be terminated?

Answer 17

1. Dissolution by expiration (the stated purpose of the partnership has come to an end)
2. Dissolution by notice of one of the partners
3. Dissolution by Bankruptcy or Death of a partner
4. Dissolution if the partnership practice becomes illegal
5. Dissolution by Court Order (permanent incapacity, prejudicial conduct, persistent breaches of partnership agreement by a partner)

Question 18

What is the effect of dissolution on the partner’s authority to bind the firm?

Answer 18

Authority to bind the firm continues in order to wind up the partnership

Question 19

How will partnership assets be distributed on dissolution?

Answer 19

1. Debts (partners personally liable if insufficient)
2. Loans made to partnership by partner
3. Partner’s capital contributions
4. Remaining assets divided up between the partners in the same proportion as profits (equally, unless the agreement states otherwise)

Question 20

Can a partnership create a floating charge?

Answer 20

No!

Question 21

What is required for the Partnership letterhead?

Answer 21

Letterhead must disclose the name of the partnership, the name of each member of the partnership, and the partnership’s business address.

Question 22

What is required for a sole trader letterhead?

Answer 22

their name
business name
business address