Partnerships

Question 1

Formalities are a strict requirement in order to form a partnership. True or false?

Answer 1

False

Question 2

2) Where there is a partnership at will, without a formal written partnership agreement, and no other express or implied agreement to the contrary, how much notice must a partner give in order to leave the partnership?

a) None.
b) The partner may leave immediately, provided that they give notice to the other partners.
c) The partner must give reasonable notice.
d) The partner must give at least one month’s notice.

Answer 2

b) The partner may leave immediately, provided that they give notice to the other partners.

Question 3

Jesper and Laurits are in partnership. Jesper invests 60% of the capital of the business and Laurits invests 40%. Jesper works full-
time for the business and Laurits works part-time. In the absence of a formal partnership agreement or informal agreement, how
will income profits be shared?

a) Equally.
b) Split 60/40 in accordance with the capital contributions.
c) Split in accordance with how many hours each partner works in the business.

Answer 3

a) Equally.

Question 4

In a partnership at will, without a formal partnership agreement, what is the impact of death or insolvency of a partner on the partnership?

Answer 4

Partnership will be dissolved.

Question 5

Fill in the blank in the following statement: ‘Where a partner acts beyond the scope of his actual authority in making a deal with a
third party, that deal may still be binding on the partnership if the partner had __________ authority to make it.’

Answer 5

Apparent. Apparent authority to the outside world.

Question 6

What are the benefits of a partnership agreement?

Answer 6

1. Provides evidence of the partnership’s terms
2. Overrides and varies the provisions of the Partnerships Act

Question 7

What is a partnership at will?

Answer 7

A partnership where to duration or fixed term is set.

Question 8

Can a partner expel another partner?

Answer 8

No, only if there is a partnership agreement with such a term.

Question 9

Is this restrictive covenant reasonable?: cannot have involvement with the same type of business as the partnership in the same geographical area for a year?

And how about in the same country and for a longer period of time?

Answer 9

Yes.

Likely no.

Question 10

Are 3 duties do partners have to each other?

Answer 10

1. Duty to provide true accounts and full information on partnership matters
2. Duty to account for profits derived from the position as partner
3. Duty to account for profits from a competing business

Question 11

Is a new partner liable for debts incurred before they became partner?

Answer 11

No

Question 12

Is a retiring partner released from debts incurred whilst they were a partner?

Answer 12

No

Question 13

Do partners leaving the partnership need to serve notice on clients?

Answer 13

Yes, or they will be liable for any actions.

Question 14

Two clients start a business together. They each invest 50% of the capital and share profits equally. After a number of years, the business makes a loss.

Have the two clients been in partnership together?

A. Yes, because they are in business together with a view to making a profit.

B. Yes, but only because they agreed to invest equal amounts of capital.

C. No, because they have not entered into a formal written partnership agreement.

D. No, because the partnership has not been registered at Companies House.

E. No, because they did not agree on how losses should be shared between them.

Answer 14

A. Yes, because they are in business together with a view to making a profit.

Question 15

A client seeks advice from a solicitor in setting up a partnership business.

Which of the following most accurately describes the position under the Partnership Act 1890, in the absence of an express
or implied agreement to the contrary?

A. Partners will have an equal share of income profits, retirement of a partner will not dissolve the partnership, all partners are entitled
to take part in the management of the business and a rogue partner may not be expelled by majority vote.

B. Partners will have an equal share of income profits, retirement of a partner will dissolve the partnership and a rogue partner may be
expelled by majority vote.

C. Partners will have an equal share of income profits, retirement of a partner will dissolve the partnership, all partners are entitled to
take part in the management of the business and a rogue partner may not be expelled by majority vote.

D. Partners will receive income profits proportionate to their capital share, retirement of a partner will not dissolve the partnership and
all partners are entitled to take part in the management of the business.

E. Partners will receive income profits proportionate to their capital share, retirement of a partner will not dissolve the partnership and a
rogue partner may not be expelled by majority vote.

Answer 15

C. Partners will have an equal share of income profits, retirement of a partner will dissolve the partnership, all partners are entitled to
take part in the management of the business and a rogue partner may not be expelled by majority vote.

Question 16

A client starts a partnership business with a friend, and they make unequal capital contributions. One of the partners works full-time for
the business and the other works part-time. There is no formal written partnership agreement or any agreement as to how income and capital profits will be shared.

Which of the following best describes the position on the share of income and capital profits?

A. Income and capital profits will be shared in accordance with the partners’ respective capital contributions.

B. Income and capital profits will be shared in accordance with the hours worked by each partner in the business.

C. Income profits will be shared according to the hours worked by each partner and capital profits will be shared equally.

D. The partners must enter into a formal written partnership agreement as the Partnership Act 1890 does not make any provision for this type of situation.

E. Income profits will be shared equally, although it will most probably be implied that capital will be shared in proportion to the
contributions made.

Answer 16

E. Income profits will be shared equally, although it will most probably be implied that capital will be shared in proportion to the
contributions made.

Question 17

A client is a partner in a bakery business and enters into a transaction to buy a conservatory for his home, with partnership money.

Which of the following best describes the liability of the firm for this transaction?

A. The partnership as a whole will be liable. Individual partners, as joint owners of the business, always have authority to bind the firm,
as agents of it. They do not need to act jointly.

B. Only the contracting partner will be liable. Individual partners, despite being joint owners of the business, do not have authority to
bind the firm, as agents of it. They must make decisions jointly.

C. If the transaction was entered into with actual or apparent authority on the part of the contracting partner, the firm will be liable. It is unlikely that there will be apparent authority as the deal did not relate to the type of business in which the partnership normally deals.

D. If the transaction was entered into with actual or apparent authority on the part of the contracting partner, the firm will be liable. It is
unlikely that there will be apparent authority unless the third party actually knew that the person they were dealing with was a
partner.

E. If the transaction was entered into with actual or apparent authority on the part of the contracting partner, the firm will be liable. It is
likely that there will be apparent authority on the facts.

Answer 17

C. If the transaction was entered into with actual or apparent authority on the part of the contracting partner, the firm will be liable. It is unlikely that there will be apparent authority as the deal did not relate to the type of business in which the partnership normally deals.

Question 18

A client leaving a partnership has sought advice as to whether she will have any ongoing liability for the partnership’s existing and
future debts. The client has already written to the firm’s existing and previous clients informing them of her departure.

Which of the following most accurately describes the position of the client?

A. Upon leaving the partnership, the client will automatically cease to be liable for existing and future debts.

B. The client can avoid liability for existing debts through deeds of release or novation. She can avoid liability for future debts by giving
constructive notice to potential clients and avoiding being held out as a partner.

C. The client will be liable for existing and future debts unless she enters into deeds of release or novation with the continuing partners and willing creditors.

D. Provided that the client gives constructive notice to potential clients and does everything possible to avoid being held out as a
partner, she will have no liability for existing and future debts.

E. Upon leaving the partnership, the client will automatically cease to be liable for future debts.

Answer 18

B. The client can avoid liability for existing debts through deeds of release or novation. She can avoid liability for future debts by giving
constructive notice to potential clients and avoiding being held out as a partner.