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SQE1: Business Law & Practice > Partnerships > Flashcards

Partnerships Flashcards

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1
Q

When does a partnership begin?

A

Partnership begins when the definition in s1 (two or more parties carrying on a business in common with a view of profit) is satisfied

This cannot be varied but a partnership agreement can include a date making clear when the parties believe the agreement’s particular rights, responsibilities & obligations commence

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2
Q

What is a partnership?

A

Two or more persons carrying on a business in common with a view of profit

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3
Q

Who can a contract be made by in a partnership?

A

By all the partners acting together or by just one of the partners

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4
Q

What are some factors that can help determine if people are ‘carrying on a business in common with a view of profit’?

A

Do the individuals all take part in the decision-making?

Whose names are on the title deeds of any property?

How are profits shared?

If they wanted to introduce a new partner, would any of the partners have the right to object?

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5
Q

Which statute governs partnerships?

A

Partnership Act 1890

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6
Q

Which provisions in the Partnership Act 1890 cannot be overriden?

A

When the partnership comes into existence

The relationship between partners & third parties

A partnership’s liability for debts

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7
Q

What are some of the responsibilities of partners under common law & the Partnership Act 1890?

A

Common law: duty of utmost fairness & good faith towards each other

PA 1890: must

  • Be completely open with each other
  • Account to the firm for any private profits they have earned without the other partners’ consent from any transaction concerning the partnership
  • Not compete with the firm
  • Bear a share of any loss made, in accordance with the terms of the agreement
  • Indemnify fellow partners who have borne more than their share of any liability or expense
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8
Q

What is the default under the Partnership Act 1890 regarding work input?

A

Partners may take part in the management of the business, but are not required to

A non-compete clause is implied by default

Nb. No provisions in PA 1890 re holiday entitlement, sickness, maternity

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9
Q

What is the default under the Partnership Act 1890 regarding decision making?

A

All decisions must be taken by majority

There are 3 decisions which can only be made unanimously:
1. Changing nature of business
2. Introducing new partner
3. Changing terms of partnership agreement

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10
Q

What is the default under the Partnership Act 1890 regarding the share in income, capital profits & losses?

A

Partners share equally in the capital profits, income profits & in any losses

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11
Q

What is the default under the Partnership Act 1890 regarding expulsion?

A

Cannot expel partners (no majority can expel another part unless partners have expressly agreed - unlikely a partner will ever agree to their own expulsion)

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12
Q

What is the default under the Partnership Act 1890 regarding duration?

A

Partnership continues until terminated

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13
Q

What is the default under the Partnership Act 1890 regarding dissolution?

A

A partnership is dissolved

  • When a partner retires (no notice requirements) - can’t be disapplied, but agreement can put in notice provisions removing right to dissolve w/ immediate effect
  • On expire of fixed term
  • By death or bankruptcy or charge
  • If something happens which makes it unlawful for the business of the firm to be carried on - can’t be disapplied

Partners can apply to the court for an order that the partnership is dissolved if:

  • A partner becomes permanently incapable of performing their part of the partnership contract
  • Partner’s conduct is prejudicial to the business
  • Partner wilfully or persistently breaches the agreement
  • Partnership can only be carried on at a loss
  • Any other reason why it is just & equitable
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13
Q

What is the default under the Partnership Act 1890 regarding the effect of dissolution?

A

The partnership must end, all assets must be sold, once money owed to creditors has been deducted the outgoing partner must receive their share (& even insist on business being sold)

Outgoing partner entitled to interest rate of 5% on the value of their share until they receive their share

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14
Q

What is the default under the Partnership Act 1890 regarding the distribution of proceeds of sale of the business/assets when partnership is sold?

A
  1. Creditors paid in full (if shortfall, partners must pay balance from their private assets)
  2. Partners who have lent money to the firm must be repaid amount outstanding, including _interest)
  3. Partners must be paid their share of the capital
  4. Any surplus is shared between the partners in accordance with the terms of their partnership agreement
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15
Q

What is the default under the Partnership Act 1890 regarding restraint of trade clauses?

A

No restraint of trade clauses included

16
Q

When will a partnership be liable to third parties?

A

A partnership will be liable to any contract/deed entered into by partners in the firm’s name where the partner had

  • Actual authority (express or implied)

or

  • Apparent authority
17
Q

How will a partner have actual authority to enter into a contract in the firm’s name?

A

Express actual authority: partners expressly authorised a partner to enter into a particular transaction / type of transaction / contract on behalf of the partnership

Implied actual authority: partners impliedly accepted partner has authority to represent firm in particular type of transaction → implied if:

  • All partners involved in running the business without any limitations; or
  • A regular course of dealing by one of the partners to which the other partners have not objected
18
Q

When will a partner have apparent authority to enter into a contract in the firm’s name?

A

Partnership will be liable to a contract if the partner appeared to an outsider to be authorised if satisfies this test:

  1. Does it relate to the type of business carried out by the partnership?
  2. Is the transaction one which a single partner in such a firm would usually have the authority to act?
  3. Did the other party to the transaction know that the partner lacked actual authority?
  4. Did the other party know or believe that the person was a partner at the time of the transaction?
19
Q

If a partner entered into a contract in the firm’s name with apparent authority, will they be personally liable?

A

The partner who made the firm liable by virtue of their apparent authority is liable to indemnify their fellow partners for any liability or loss incurred as a result?

20
Q

Will a partner be liable for the debts of the partnership incurred before they left the partnership?

A

Yes: each partner is jointly & severally liable

BUT partner will not be liable if, on retirement, they entered into a novation agreement that extinguished their liability for the debt

21
Q

What is a novation agreement?

A

A contract with the creditor + other partners (& possibly incoming partner) which releases the original partners from their liability (including the retiring partner) & the newly constituted firm takes over

Nb. If the partner retires & no new partner joins, the agreement will only be binding if:

  • Consideration for the creditor’s promise to release retiring partner from liability; or
  • Contract is executed as a deed
22
Q

Will a retired partner be liable for the debts of a partnership incurred after they left the partnership?

A

No, so long as they have complied with the notice requirements in s36 PA 1890:

  1. Give actual notice directly to existing customers
  2. Give notice to future customers in the London Gazette
  3. Remove name from letterhead/website etc. to prevent holding out claims
23
Q

What does ‘jointly & severally liable’ mean?

A

A claimant can sue any or all partners & collect total damages awarded from any or all partners

24
Q

What are the notice requirements for retiring partners?

A
  1. Give actual notice directly to existing customers
  2. Give notice to future customers in the London Gazette
  3. Remove name from letterhead/website etc. to prevent holding out claims
25
Q

What is holding out?

A

Where a person has held themselves out - or allowed themselves to be held out - as a current partner of the partnership

26
Q

When can a creditor sue a person who has held out that they are a partner?

A

If they can establish that:

  • The person held themselves out or allowed themselves to be held out as a current partner; and
  • The creditor relied on the holding out; and
  • They gave credit to the firm

SQE1: Business Law & Practice (9 decks)

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