Partnerships Flashcards
S1 Partnership Act 1980 defines a partnership as…
The relation which subsists between persons, carrying on a business in common, with a view for profit
What formalities are required in forming a partnership?
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.
True or False: Partners will be personally liable for any debts and their personal assets are at risk
True
Who will the debts and liabilities of a partnership be enforced against?
The partner who entered into the contract or the partnership as a whole (the firm)
Who will the debts and liabilities of a partnership be enforced against?
The partner who entered into the contract or the partnership as a whole (the firm)
What is Actual Authority?
where a partner is actually authorised by the partnership to enter into an agreement
What is Apparent Authority?
where a partner carries on business of the kind carried out by the firm in the usual way
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
True
Incoming Partners: Liability?
Are NOT generally liable for partnership debts incurred before they became a partner
Outgoing Partners: Liability?
A partner who retires from the firm does not cease to be liable for partnership debts incurred before his retirement
How can an outgoing partner avoid liability for partnership debts?
- Indemnity
- Novation Agreement
What is an indemnity (for the purpose of avoiding liability for partnership debts when you have left the firm)?
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
What is a Novation Agreement?
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.
What is the negative effect of a Novation Agreement on new incoming partners?
It would make any new incoming partners liable for any debts incurred before they were a partner.
A partner who leaves a firm before a debt is incurred may still be liable for that debt through either:
- Holding out
- Failure to give appropriate notice of departure
What are the three elements to holding out?
- 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
- Reliance: there must be reliance upon the representation by the person to whom the representation is made
- The consequent giving of credit to the firm: the creditor must make payment to the firm as a result of reliance on the representation
s36 Partnership Act 1980 states…
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”
What two notices are required to give appropriate notice of departure from a partnership?
- Actual Notice: letters should be sent to all existing customers announcing that the partner was leaving
- Notice in the London Gazette: to notify persons who have not previously dealt with the firm
