Partnerships Flashcards
What are the characteristics of a general partnership?
- an unincorporated association - no separate legal personality
- unlimited joint liability for partnership debts
- limit on members - 2 to 20
- agency relationship - each partner can bind the others in contract
- personal in nature - partners must have trust and confidence in each other (like a marriage)
- Fiduciary responsibility in favor of each other
- Jointly owned assets
- called ‘firms’
- all are entitled to manage (subject to agreement to the contrary)
Where the Partnership Act is silent, what applies?
The rules of equity and common law prevails
Why is a partnership agreement important?
The partnership agreement is an exceedingly important reference point for determining the legal relationship between partners and the rules governing the operation of the partnership as a business vehicle.
several rules/provisions are subject to any contrary agreement between the partners.
Formation of partnership requires both ______________ of all partners as well as the _____________________.
the agreement;
the actual commencement of the partnership business.
Demerits of a general partnership?
- unlimited personal liability for debts
- more potential for conflict
- no perpertual succession
What are the merits of a general partnership?
- easy to form - little formality - No registration necessary
- more opportunity for capitalism (in comparison to SP)
- personal liability for debts is shared
- Privacy - absence of registration requirements
- shared management and skills
- inexpensive to maintain
What is the minimum number of persons required to form a partnership?
2 people
Name two major distinction between a sole proprietorship and a general partnership.
Answer may include:
- The number of persons. 1 in a sole and 2 to 20 in a partnership
- Agency- sole proprietor’s action would only affect them
- You have more people who can contribute to the capital of the business
True or False.
all assets used in the partnership business are partnership assets.
False
How are partnerships governed?
Partnerships are governed by the common law, and where applicable, by statute.
When is registration of a general partnership required?
Where a trade name is being used, registration under the Business Names Act is required.
What is the utility of a Written partnership agreement?
- May impose terms which are contrary to the common law or statutory provisions.
- Avoids reliance on terms which the law implies.
- May vary the requirement for unanimity which, at law, is required for certain decisions
- Provides a ready reference for what was agreed.
- Focuses the mind of the prospective partners on the issues which should be discussed and agreed, not only to avoid disputes but also to establish a working framework for the operation of the partnership
- Provides a framework for resolving disputes
- May be required for financial and other institutions
What is the impact, in law, of the death of a partner?
Partnership will dissolve
What is a technical dissolution?
Even where the partnership agreement provides that the partnership will not be dissolved on the death or retirement of a partner, at law, a type of dissolution is deemed to take place. This is a technical dissolution. In this, the old firm is dissolved and a new firm is immediately created between the remaining partners. The new firm will continue the existing partnership business.
In a general dissolution, no new partnership is created, the affairs of the partnership are wound up and the partnership business ceases. In a technical dissolution, there is no winding up.
What does ‘With a view to profit’ mean?
The business must be carried on for the purpose of making a profit.
There must be the intention to make a profit but the fact of profit is irrelevant as to whether a partnership exists.
Using one word, indicate the underlying legal basis of the partnership relationship.
Contractual
Name two legal characteristics of the relationship between partners.
-Agreement/Contractual relationship
- Agency
- Fiduciary
True or False.
A partnership is wound up and then dissolved.
False.
The first stage is dissolution and then winding up
Fill in the blank. The partners in a partnership are collectively referred to as a _________?
Firm
What are the elements of partnership?
-two or more persons
-carrying on business in common
-with a view to profit
Name two respects in which a sole proprietorship is similar to a general partnership.
Answer may include:
- No Registration requirements
- No separate legal personality
- Unlimited lability for the debts of the business – both personal and business assets are on the line
- No need to register
- Not perpetual
- Management and ownership are one and the same
True or False .
A business which is unprofitable cannot, in law, be a partnership?
False
Is there an upper limit on the number of persons who may form a Law Partnership?
20 = upper limit
Section 3 (2), 10 is for banking and 20 is for others
True or False
a company may be partner in a partnership?
True
What is a partnership?
A partnership is the relation that subsists between 2 or more persons carrying on a business in common with a view to make a profit.
Partnership is a relationship based on ____________.
the law of contract.
What does the legislation say about names that should be registered?
a business name which does not consist of the true surnames of all partners who are individuals and the corporate names of all partners who are corporations
without any addition other than the true christian names of individual partners or initials of such christian names;
should be registered
Are the affairs of partnerships generally less or more private than those of a private company?
More private
What are the various ways a partnership may be dissolved
- Unanimous agreement of the partners
- Exercise of an express power in the partnership agreement
- Expiration of the partnership term or the occurrence of a dissolution event (trigger event)
- Service of notice by a partner in a partnership at will (where a partnership has not fixed term or determinative date)
- Death, bankruptcy, expulsion or retirement of a partner. However as discussed the Partnership Agreement may provide otherwise.
- Compulsory dissolution by the Court by application under the Companies Act allowing for the winding up of unregistered companies.
- Bankruptcy proceedings under the Insolvency Act
Under which of the basic characteristics of the partnership relationship does the rule prohibiting secret profit fall?
Fiduciary relationship
What does ‘Carrying on Business in Common’ mean?
Business means a trade, occupation, or profession.
The business must be carried on by or on behalf of the partners.
They must be jointly engaged in business with each other.
It is a question of fact.
Name the source(s) of partnership law in Belize
-Partnership Act (Section 26 speaks about the agreement) ,
-Companies Act,
-Equity and
-Common Law, Section 47
True or False
a partnership is a suitable business vehicle for an endeavor with purely charitable objectives?
False
What does “Between two or more persons” mean?
There must be voluntary agreement between two or more persons to carry on business in common
Two or more persons are required.
A company may be a partner in a partnership
How is a firm registered under the Business Names Act?
within 14 days after the firm has commences business,
the firm must furnish to the Registrar a statement in writing in the prescribed form
signed either by all the partners or by some individual who is a partner,
The statement must contain the following particulars,
(a) the business name;
(b) the general nature of the business;
(c) the principal place of the business;
(d) the present christian name and surname,
the nationality,
the usual residence, and
the other business occupation, if any,
of each of the individuals who are partners, and the corporate name
and registered or principal office of every corporation which is a partner;
(e) the date of the commencement of the business.
On receiving the statement, the Registrar shall cause the same to be filed, and he shall send by post or deliver a certificate of the registration thereof to the firm.
What are the obligations of a firm registered under the Business Names Act?
- Notify registrar of Changes in particulars
- Obligation to exhibit the certificate
- Publication of names in documents
- Notify registrar where partners cease to carry on business
- Duty to furnish particular to Registrar
How is a Partnership wound up?
It should be noted that on the premise of the agency relationship, the authority of the partners to bind the firm and the other rights and obligations of the partners continue, notwithstanding the dissolution, in so far as is necessary for the winding up of the partnership affairs. A partner is entitled to take steps to get in the assets of the firm and to the assistance of other partners in doing so.
A final and general account will be taken and there will ultimately be a distribution of assets of the firm in accordance with the respective entitlements.
DISTRIBUTION OF ASSETS
LOSSES
Losses are paid:
Out of Profits; if unsatisfied then
Out of Capital; if unsatisfied then
By the Partners
ASSETS
Assets are applied:
To pay debts and liabilities to third parties; then
To repay advances made by partners; then
To repay capital to partners; then
In a distribution of the residue to partners
What is the implied term of a general partnership agreement regarding management?
Each partner has an implied right to take part in the business of the partnership, or the right to manage the business.
If an executive committee or a managing partner with authority to take certain decisions is desired for managing the firm, what should be done?
This must be expressly agreed.
otherwise, it is implied that all partners have the right to manage.
True or False.
ordinary matters connected with the partnership business may be decided by a majority of the partners, unless the agreement says otherwise.
True.
What is the implied term of a partnership agreement regarding remuneration?
There is no implied right to remuneration for being a partner other than a share of the profits.
Because of this, any right to remuneration desired must be spelt out.
How do you ensure that a managing partner is remunerated?
where there is a desire to remunerate a managing partner it must be expressly agreed as there is no implied right to remuneration for being a partner.
Can there be a change to the partnership business?
In the absence of a contrary provision in the agreement, all partners have the right to have the partnership business conducted in accordance with the agreed terms. This means e.g. that there can be no change in the partnership business without the consent of all the partners.
Where a partner makes payments or incurs personal liability in the normal course of the partnership business. what is the implied term?
All partners also have the right to be indemnified for payments made, and personal liability incurred, in the normal course of the partnership business.
True or False.
There is an implied term that interest is paid on capital.
False.
There is an implied term that no interest is payable on capital.
There is an implied right to be paid interest on advances made to the partnership over and above the specified capital contribution.
If no interest is to be paid on these advances, this will have to be stated but, in any event, it is advisable, where interest is desired, to spell out the exact terms of such loans to the partnership, including the applicable rate of interest.
True or False.
Each partner has an implied right to an account of the activities of the firm and the right to examine the accounts of the firm
True
What are terms of the agreement are implied based on the fiduciary relationship?
There is an implied prohibition against engaging in a business that competes with that of the firm.
There is an implied prohibition against any partner making secret profits.
True or false.
If the agreement gives one partner the option to introduce a new partner, the other partners are bound to accept him or her.
True.
The consent required is deemed to have been given in advance, without reference to any particular individual.
True or False.
A partner has an implied right to retire
False
True or False.
A partner has an implied right to retire
False
True or False.
There is no implied right of the majority to expel a partner from the partnership
True
What are the implied terms of partnership?
Hint: A FIREARM PIN
Accounts
Fiduciary
Indemnification
Remuneration
Expulsion
Account - Books
Retirement
Management
Partnership Business
Interest
New Partner
What General Terms should be included in a partnership agreement?
Hint: N double N C P
Name of the partners
Name of the partnership
Commencement and duration
Nature of the business
Place of business
Capital
Profit and Loss
Where there is no fixed term of the partnership, it is taken that the partnership is __________.
Which mean?
at will;
it is terminable on notice of the partners
What should the clause of the agreement relating to capital address?
- The nature, size, and timing of all contributions to capital
- How capital is to be owned, whether equally or in different proportions. Capital need not be owned in the same proportions as it has been contributed.
- How accretion of capital will be owned (subject to contrary provisions, the accretion would be owned in equal shares.
- Whether contributions to capital are interest bearing. There is no entitlement at law to such interest but the agreement may provide for same. Where capital is being contributed in unequal shares, it would be particularly appropriate to provide for the payment of interest on it, prior to the calculation of net profits.
What should the clause of the agreement relating to profit and loss address?
The general position is that no partner is entitled to anything until year end when the profit for the year is ascertained and divided. The agreement may provide otherwise.
In some firms, partners are paid ‘salaries’ which are in effect payments in anticipation of profit share at the end of the year. Partners, however, have to account for the excess if the profit share proves to be less than what was earned through ‘salaries’.
What Terms relating to the Partners should be included in a partnership agreement?
Hint: caVed or caGed
Expulsion of partners
Admission of partners
Death of a partner
Voluntary Retirement of Partners
Compulsory Retirement of Partners
General provisions relating to outgoing partners
What Terms relating to the Management of the partnership should be included in a partnership agreement?
Hint: MD
Management structure
Decision Making
Which clause of the agreement must have regard to and reflect natural justice?
Expulsion of partners
The clause should spell out the procedure and grounds on which a partner may be expelled. It should also make provisions as it regards the interest of the expelled partner.
It is prudent (borderline imperative) that a clause must be in the agreement which says that the partnership will continue notwithstanding the death of the partner
It is prudent (borderline imperative) that a clause must be in the agreement which says that the partnership will continue notwithstanding the death of the partner
What are the ‘other provisions that should be included in a partnership agreement?
Hint: B (2)PAID(3)
Accounts
Banking arrangements
Duties and obligations of partners
Partnership leave
Property
Dispute resolution
Indemnity
Dissolution
