Partnerships Flashcards
what is a partnership?
where two or more persons are
‘carrying on a business in common with a view of profit’.
do partners have to enter into a written agreement?
Any agreement between the parties does not have to be written: an oral agreement is just as
valid as a written agreement, but a written partnership agreement more desirable.
What terms must not be included in a partnership name?
partnership name must NOT include
- ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’;
* be offensive;
* be the same as an existing trademark; or
* contain a ‘sensitive’ word or expression, or suggest a connection with government or local
authorities, without permission
Under the PA 1890, are partners required to take part in the management of the business?
NO, partners may take part in management but are not required to do so. - In the absence of such a provision, it might be difficult
for the other partners to argue that one partner should be working more.
What is a common clause in partnership agreements regarding a partner’s time and attention?
A common clause requires partners to devote their whole time and attention to the business.
What is a fixed-term partnership agreement and why might partners enter into one?
A fixed-term partnership agreement specifies a set period for the partnership, ending when the partners expect it to expire. Partners often enter into such agreements to achieve a specific aim, after which the partnership will end.
What does the PA 1890 say about non-compete clauses
Non-compete clauses are common in partnership agreements, but one will be implied by default under the PA 1890 if not expressly included.
What should a partnership agreement specify about holiday, sickness, and maternity/paternity provisions?
The agreement should include these provisions, as the PA 1890 does not address them, leaving no default position. Without an explicit provision, there is no legal basis to demand these entitlements in the partnership context.
Under the PA 1890, how are most partnership decisions made?
Most partnership decisions are made by majority vote.
What are the three exceptions to majority decision-making in partnerships and MUST be made unanimously?
- changing the nature of the business;
- introducing a new partner; and
- changing the terms of the partnership agreement
How are capital and profits shared under the PA 1890 by default?
Under the PA 1890, partners share equally in the capital and profits of the business.
What happens if partners contribute different amounts to the partnership capital?
The partners may decide to own the partnership capital and capital profits in proportion to their contributions. The partnership agreement should reflect this decision to override the default equal shares under the PA 1890
Can unequal sharing of capital profits be implied?
YES, it can sometimes be inferred from a course of conduct that the partners
own capital profits in unequal shares.
Are partners considered employees of the partnership?
No, partners are not employees; they own the business.
What are income profits received by partners called?
Income profits received by partners are known as drawings.
What should the partnership agreement specify about drawings?
The agreement should specify how much each partner is allowed to draw in a given period, typically monthly.
In the absence of an agreement, income profits are shared equally under the PA 1890.
Can a majority of partners expel another partner under the default provisions of the PA 1890?
No, under s 25 of the PA 1890, a majority cannot expel a partner unless EXPRESSLY agreed to in a partnership agreement.
Why is it effectively impossible to expel a partner under the default PA 1890 rules?
Because no partner is likely to agree to their own expulsion, and the law requires express agreement to permit expulsion.
What is typically included in a (new) partnership agreement to allow expulsion of a partner?
to overcome this limitation, a partnership agreement must include an expulsion clause. This clause explicitly grants the other partners the power to remove a partner under circumstances e.g., poor performance.
What does dissolution of a partnership mean under the PA 1890?
Dissolution of a partnership means the partnership ends, but the partners may still continue trading together. It only refers to the end of the contractual relationship between the partners.
Why is it important for partners to include dissolution terms in the partnership agreement?
Including dissolution terms in the partnership agreement provides more control over when a partner can retire or when the partnership will end.
The default rule allows a partner to end the partnership immediately by giving notice of their intention to do so, which can be impractical and disruptive for the business.
What is a “partnership at will” under the PA 1890?
A “partnership at will” is a partnership that continues indefinitely until notice is given by any partner to end the partnership.
Under the PA 1890, what is required for a partner to end a “partnership at will”?
Under default PA - partner can end the partnership immediately by simply giving notice, with no requirement for a certain notice length or written form (unless the agreement is a deed).
