Partnerships Flashcards

Traditional Partnerships under the 1890 Act

You may prefer our related Brainscape-certified flashcards:
1
Q

How is a partnership formed?

A

When there is a relationship between persons carrying on a business in common with a view to making profit.

Requires at least two people (includes legal and actual persons)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the indications of a partnership being formed?

A
  • partnership agreement (conclusive)
  • evidence of profit sharing
  • if all individuals take part in decision making
  • a loan of money by one party to another does not create a partnership
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the disadvantages of traditional partnerships?

A
  • legislation governing partnerships are outdated and unsuited to modern business
  • no limited liability
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are the advantages of traditional partnerships?

A
  • no set up costs
  • no required formalities
  • no filing or disclosure requirement
  • high level of privacy
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the relationship between partners?

A

There is a fiduciary relationship - an overriding duty of good faith in a partnership

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What evidence is there of the fiduciary relationship between partners in the 1890 Act?

A
  • honest and full disclosure (s 28)
  • unauthorised personal profit (s 29(1))
  • conflict of duty and interest (s 30)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the liability of partners?

A

Partners are personally liable as the firm has no separate legal personality

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the liability of partners in contract?

A

Partners are jointly liable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is the liability of new partners?

A

New partners are not automatically liable for debts incurred before they joined the partnership.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is the liability of partners in tort?

A

Partners are jointly and severally liable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the liability of partners after they retire?

A

They will still be liable for debts incurred by the partnership whilst they were a partner.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What must partners do to relieve a retiring partner of their liability?

A

They must novate the relevant agreement with consent of the creditor.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

When will former partners be liable for debts incurred after they have left?

A

Can still be liable if a third party believes they are still a partner

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

How do former partners avoid being liable after they leave the partnership?

A

Providing notice to third parties that they are no longer a partner. Either actual notice (for those who had actual dealings with the partner) or constructive notice by publishing departure in the London Gazette (for those who did not have dealings with the partner).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

When will a non-partner be liable for partnership debts under statute?

A

Generally never.

Exception - when they have held themselves out as a partner (or have knowingly allowed themselves to be held out).

Requires:

  • Representation to third party to effect that person is a partner
  • third party’s action in response (eg giving credit to firm)
  • third party believes they were a partner
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

When do contracts bind the firm?

A
  • when the person forming the contract has actual, express or implied authority to act
  • if no authority, where partner’s ratify the agent’s act and adopts the contract - expressly or can be done by performing the contract
  • section 5 - unauthorised act by partner will be binding if (i) it is the act is the kind carried on by the business of the firm and (ii) the act is for carrying on the business in the usual way (will not be bound if third party knew partner in question was not authorised or if they did not know they were a partner)
  • if apparent authority under common law applies. Requires the firm to represent or permit representation to third party that a person has authority to bind the firm and third party to rely on it, for firm to be bound.
15
Q

How are partnerships taxed?

A

Partnerships are tax transparent meaning partners are taxes as an individual on their share of profits (income tax) or gains (CGT)

15
Q

How are the mutual rights and obligations of a partnership governed?

A

By the provisions in the 1890 Act unless there is a partnership agreement.

16
Q

What limitations are there on a partnership name?

A

Cannot include anything that suggests it is public or private company, an LLP, an existing trademark, sensitive word or expression, anything that suggests it a connection with government without permission.

17
Q

What is the default position with partnership property?

A

All property brought into the partnership is partnership property and all property bought with partnership money is deemed to be partnership property.

17
Q

What is the default position in relation to sharing income and capital?

A

Income and capital is to be shared equally between the partners

18
Q

What is the default position in relation to salaries?

A

No partner is entitled to a salary.

19
Q

What is the default position in relation to management?

A

Every partner may take part in the management of the partnership.

20
Q

What is the default position in relation to decision making?

A

All decision making must be decided by majority other than which requires unanimity:

  • changes to the nature of the partnership business
  • introducing a new partner
  • varying the rights and duties of partners
21
Q

What is the default position of introducing new partners?

A

Consent of all partners is required.

22
Q

What is the default position of excluding a partner?

A

Consent of all parties is required unless previously expressly agreed that a majority can do this.

23
Q

What is default effect of partner leaving?

A

Technical dissolution - a new partnership is formed by the remaining partners who continue the business.

24
Q

Are partners allowed to compete with the firm?

A

Not whilst they are a partner, unless expressly agreed otherwise.

After they leave the firm, default position is there is no requirement not to compete.

25
Q

How is a partnership dissolved under the default provisions?

A

Automatic dissolution on expiry of fixed term, completion of a specific venture, death or bankruptcy of any partner.

By notice from any partner.

If the partnership business becomes unlawful.

By the court as a last resort.

26
Q

How are assets distributed on dissolution of a partnership under the default provisions?

A

Debts and liabilities have been paid first.

Then each partner receives back the share of capital they put in initially.

Then any surplus is distributed equally between the partners.