Partnerships

Question 1

S1 Partnership Act 1980 defines a partnership as…

Answer 1

The relation which subsists between persons, carrying on a business in common, with a view for profit

Question 2

What formalities are required in forming a partnership?

Answer 2

None. There is no requirement for a written agreement and a partnership will exist even when the individuals involved are unaware of what they have created legally.

Question 3

True or False: Partners will be personally liable for any debts and their personal assets are at risk

Answer 3

True

Question 4

Who will the debts and liabilities of a partnership be enforced against?

Answer 4

The partner who entered into the contract or the partnership as a whole (the firm)

Question 5

Who will the debts and liabilities of a partnership be enforced against?

Answer 5

The partner who entered into the contract or the partnership as a whole (the firm)

Question 6

What is Actual Authority?

Answer 6

where a partner is actually authorised by the partnership to enter into an agreement

Question 7

What is Apparent Authority?

Answer 7

where a partner carries on business of the kind carried out by the firm in the usual way

Question 8

True or False: If a partner does not have actual authority, the partnership may still be bound under s5 if the partner has “apparent” authority

Answer 8

True

Question 9

Incoming Partners: Liability?

Answer 9

Are NOT generally liable for partnership debts incurred before they became a partner

Question 10

Outgoing Partners: Liability?

Answer 10

A partner who retires from the firm does not cease to be liable for partnership debts incurred before his retirement

Question 11

How can an outgoing partner avoid liability for partnership debts?

Answer 11

1. Indemnity
2. Novation Agreement

Question 12

What is an indemnity (for the purpose of avoiding liability for partnership debts when you have left the firm)?

Answer 12

An indemnity is where the remaining partners contractually agree with the outgoing partner to repay the outgoing partner in the event that he is sued by a creditor for a debt

Question 13

What is a Novation Agreement?

Answer 13

Where a partner leaves the firm, a creditor may enter into a novation agreement with the partners at the time the contract was made and the newly constituted partnership. This will release the original partners from their liability and have the firm, as newly constituted, take over the liability.

Question 14

What is the negative effect of a Novation Agreement on new incoming partners?

Answer 14

It would make any new incoming partners liable for any debts incurred before they were a partner.

Question 15

A partner who leaves a firm before a debt is incurred may still be liable for that debt through either:

Answer 15

1. Holding out
2. Failure to give appropriate notice of departure

Question 16

What are the three elements to holding out?

Answer 16

1. A representation: there must be a representation that Partner X is a partner in the firm either by Partner X or someone else but with Partner X’s knowledge
2. Reliance: there must be reliance upon the representation by the person to whom the representation is made
3. The consequent giving of credit to the firm: the creditor must make payment to the firm as a result of reliance on the representation

Question 17

s36 Partnership Act 1980 states…

Answer 17

where a person deals with the firm he is “entitled to treat all apparent members of the old firm as still being members of the firm until he has notice of the change”

Question 18

What two notices are required to give appropriate notice of departure from a partnership?

Answer 18

1. Actual Notice: letters should be sent to all existing customers announcing that the partner was leaving
2. Notice in the London Gazette: to notify persons who have not previously dealt with the firm