Partnerships

Question 1

Definition of partnership

Answer 1

2/more people “carrying on a business in common with a view of profit”

Factors used to determine this:
- do all take part in decision-making?
- whose names are on property title deeds?
- how are profits shared?

Question 2

PA 1890 default on sharing profits

Answer 2

Income profits shared equally regardless of hours worked/capital contributions
BUT: can argue profits should be shared based on capital contributions, as it may be an implied term

Question 3

PA 1890 default on expulsion

Answer 3

Partner cannot be expelled unless expressly agrees to it (so, should have own agreement with expulsion clause)

Question 4

PA 1890 default on dissolution

Answer 4

Dissolution occurs when:
- partner retires (can do so anytime by giving notice to all other partners- can be oral),
- expiry of fixed term,
- any partner dies/bankrupt,
- partners give notice of dissolution to partner who granted charge over their share of partnership property for their personal debt,
- something makes business illegal to carry out,
- by court order applied for by partners

Question 5

PA 1890 default on distribution of proceeds of sale

Answer 5

1. creditors paid (using personal assets if necessary),
2. partners who lent money + interest paid,
3. partners paid share of capital they’re entitled to,
4. surplus shared among partners according to agreement

Question 6

Restraint of trade clauses are enforceable if:

Answer 6

1. protect legitimate business interest,
2. no wider than reasonable (in duration, scope, area)

Question 7

Partners’ responsibilities under PA 1890

Answer 7

• be completely open about relevant information,
• account for private profits earned without others’ consent from transaction concerning the partnership,
• do not compete with partnership (or account for profits),
• bear your share of loss according to agreement,
• indemnify partners who bore more than their share of loss

Question 8

Partnership is liable to 3rd parties when:

Answer 8

1. under contract
2. there was actual authority (partners acted jointly, express or implied)
3. there was apparent authority

Question 9

Apparent authority arises when:

Answer 9

1. transaction relates to kind of business carried out by firm,
2. transaction one which partner is such a firm would be expected to have authority for,
3. 3rd party not aware of lack of authority,
4. 3rd party dealt with person they knew/believed to be a partner

Question 10

How to limit liability for debts incurred after leaving partnership:

Answer 10

• directly inform of departure anyone that firm previously dealt with
• notify anyone the firm did not deal with through the Gazette

NO notice required if departure caused by death/bankruptcy

Question 11

Who to enforce partnership’s liabilities against:

Answer 11

• partner with whom contract made, or
• anyone who was partner when debt incurred, or
• firm (partners jointly liable)

Question 12

Default contract for LLPs

Answer 12

LLP Regulations 2001

Question 13

Number of members on incorporation of LLP

Answer 13

Min. 2 members on incorporation, min. 2 designated members on incorporation (can be same people)

Question 14

How to incorporate LLP

Answer 14

1. File LLIN01 form at Companies House, pay fee (don’t have to file LLP agreement)
2. House issues certificate of registration

Question 15

Change in membership of LLP formalities

Answer 15

If new member: file form at Companies House within 14 days of appointment
If member leaving: file form at Companies house within 14 days of leaving

Question 16

LLP Regulations default position on sharing capital + profits

Answer 16

Equal shares

Question 17

LLP Regulations default position on management

Answer 17

Every member entitled to manage LLP, and not entitled to payment for it

Question 18

LLP Regulations default position on leaving + expulsion

Answer 18

Members can leave by giving reasonable notice, and cannot be expelled