Partnerships

Question 1

When is a retired partner liable for debts and liabilities incurred after their retirement according to the Partnership Act 1890?

Answer 1

Generally not liable for debts and liabilities incurred after retirement unless they:
1. Fail to give appropriate notice under s.36 Partnership Act 1890 or
2. knowingly hold themselves out or allow themselves to be held out as a partner after retirement

Question 2

Under the Partnership Act 1890, how can a partner be expelled?

Answer 2

A majority of partners cannot expel a partner in the absence of a partnership agreement. Expulsion requires unanimous agreement and the consent of the partner being removed.

Question 3

Under the Partnership Act 1890, how can a new partner be introduced?

Answer 3

unanimous consent of existing partners

Question 4

Can a majority of partners make decisions on ordinary business matters without unanimous consent?

Answer 4

yes, i.e. contracts relating to ordinary business matters can be made by majority

Question 5

what is a partnership at will?

Answer 5

partnership for an indefinite duration.

Question 6

what does the partnership act say in relation to dissolution of partnerships at will

Answer 6

provides that a partnership “at will” may be dissolved by any partner giving notice to the others.

Question 7

can a partner be prevented from setting up a competing business when they leave a partnership

Answer 7

s. 30 of the Partnership Act 1890 only provides for restrictions on competition they are still a partner.

Question 8

is a partner entitled to remuneration under the partnership act?

Answer 8

no

Question 9

what is the effect of a partner retiring?

Answer 9

dissolves the partnership

Question 10

when does a partnership come into existence?

Answer 10

when “two or more persons are ‘carrying on a business in common with a view of profit’”

Question 11

what form must a partnership agreement take?

Answer 11

can be written, oral or implied by conduct over time

Question 12

how can a partnership agreement be varied

Answer 12

by consent of all the partners

Question 13

what happens when there is no formal partnership agreement?

Answer 13

PA will imply certain terms into the partnership

Question 14

what is the default position for profits and losses

Answer 14

partners share equally in profits and losses

Question 15

what is the default position for sharing capital

Answer 15

Partners will share equally in capital of the firm

BUT case law has established that there may be an implied term that the partners own capital in accordance with initial capital contributions

Question 16

what is the default provision for interest on capital?

Answer 16

there is none

Question 17

Under PA, how are expenses handled in a partnership?

Answer 17

artners are to be indemnified for any payments made in the ordinary course of the partnership business

Question 18

What does PA state about partners’ rights in the management of the business?

Answer 18

all partners are entitled to participate in the management of the business, but they are not required to do so.

Question 19

Under PA how are management decisions about entering into contracts handled?

Answer 19

entry into a contract is a management decision, which can be made by a majority of partners. However, if the decision changes the nature of the business, it requires unanimity.

Question 20

which decisions require unanimous consent under the PA?

Answer 20

• changing nature of business
• introducing a new partner
• changing the partnership agreement

Question 21

What is the order of distribution of proceeds from the sale of a partnership business under section 44 of the Partnership Act 1890?

Answer 21

Unless otherwise agreed, the distribution of proceeds follows this order:
1. Creditors paid in full: If there’s a shortfall, partners cover it from their private assets, sharing losses per the partnership agreement.
2. Partner loans repaid: Partners who lent money to the firm are repaid, including loan interest.
3. Capital repayment: Partners receive the capital share they are entitled to, either equally (default) or as specified in the agreement.
4. Surplus distribution: Any remaining surplus is shared among partners according to the partnership agreement.

Question 22

what are the 3 statutory duties under PA

Answer 22

1. Duty to provide true accountr
2. duty to account for benefits (i.e. secret profits)
3. duty not to compete

Question 23

what triggers automatically dissolve a partnership

Answer 23

• retirement of a partner
• expiry of a fixed term partnership
• death or bankruptcy of a partner
• unlawful continuation of business
• dissolution notice by a partner

Question 24

can partners apply for a court ordered dissolution?

Answer 24

yes, where:
* permanent incapacity of a partner
* persistent breach by partner
* partnership can only operate at a loss

Question 25

why is automatic dissolution under the pA undesirable?

Answer 25

will have to sell asset and pay outgoing partner their share (as they can force a sale)

Question 26

what is an outgoing partner entitled to until their share is paid to them

Answer 26

If the partnership assets are not sold immediately, the outgoing partner is entitled to 5% annual interest on their share until they receive their payment.

Question 27

what is holding out?

Answer 27

1. representation
2. reliance on the representation by third party
3. consequent giving of crefit