PARTNERSHIPS Flashcards
chapter 6
What is the definition of a partnership according to the Partnership Act 1890 (PA 1890)?
A partnership exists when two or more persons are “carrying on a business in common with a view of profit”.
What are some factors that help determine if a partnership exists?
○Do the individuals all take part in decision-making?
○Whose names are on the title deeds of any property?
○How are profits shared?
○Are the individuals “carrying on a business in common?”
What is the key difference between a general partnership and a limited liability partnership (LLP)?
In a general partnership, partners have unlimited personal liability for the debts of the partnership. In an LLP, members generally have limited liability, meaning their personal assets are protected.
What is the default contract for general partnerships and what does that mean?
The Partnership Act 1890 provides a default contract that governs the relationship between partners unless they have agreed to specific terms. Most of the PA 1890 can be overridden by agreement, except for sections 1 and 2 governing when a partnership comes into existence, and sections 5-18, which cover the relationship between the partners and third parties and liability for debts.
What are some advantages of operating as a general partnership?
○No formalities are required to start a partnership.
○Lack of extensive administrative and accounting requirements
○Partners can concentrate on their trade rather than legal and administrative matters.
What are the default rules for sharing profits and losses in a general partnership under the PA 1890?
Partners share equally in the capital, income, profits, and losses of the business, unless otherwise agreed.
What are three decisions that require unanimous consent in a general partnership under the PA 1890?
○Changing the nature of the business.
○Introducing a new partner.
○Changing the terms of the partnership agreement.
Under what circumstances can a partner be expelled from a general partnership?
Under the default provisions of the PA 1890, no majority of partners may expel another partner unless the partners have expressly agreed to this. This must be agreed, usually in writing, in a partnership agreement.
How can a general partnership be dissolved?
A partnership can be dissolved through:
○ A partner retiring.
○ Expiry of a fixed term.
○ Death or bankruptcy of a partner.
○ Notice of dissolution from a partner to the others.
○ If something happens which makes it unlawful for the business to continue.
○ A court order.
What is “apparent authority” in the context of partnerships?
A firm may be liable for actions which were not actually authorized but which may have appeared to an outsider to be authorized. This occurs when a partner acts in a way that seems within their normal scope of authority to a third party.
What is the effect of a novation agreement on a retiring partner’s liability?
A novation agreement releases a retiring partner from an existing debt by transferring the liability to the newly constituted firm or the remaining partners. However, these agreements are rare, especially for one-off debts.
What are the requirements for a retiring partner to avoid liability for future debts of a general partnership under s36 of the PA 1890?
○Actual notice must be given to those who have dealt with the firm before the partner left.
○Notice must be placed in the London Gazette (or other appropriate gazette) to notify those who have not had prior dealings.
What is “holding out” in the context of partnership liability?
If someone represents themselves or allows themselves to be represented as a partner to a third party, and that third party relies on this representation to give credit to the firm, the person “holding out” can be held liable for the firm’s debt even if they are not actually a partner.
What is the main advantage of a Limited Liability Partnership (LLP)?
The primary advantage is that members have limited liability for the debts of the LLP.
How is an LLP formed?
An LLP is formed by filing form LL IN01 at Companies House, along with the applicable fee. There is no requirement to file an LLP agreement.
What is the role of “designated members” in an LLP?
Designated members have powers similar to directors in a company, and are responsible for various administrative and legal matters, such as:
○ Filing annual accounts
○ Appointing auditors
○ Filing the annual confirmation statement.
○ Notifying Companies House of changes in membership.
What are the default rules for sharing profits in an LLP?
Under the LLP Regulations 2001, members of an LLP share equally in the capital and profits of the LLP, but this can be varied by agreement. Unlike general partnerships, there is no default rule for sharing losses as those are borne by the LLP itself.
What are some of the administrative requirements of an LLP?
LLPs must:
○File accounts with the Registrar of Companies.
○File other information, such as notice of termination of membership, with Companies House.
○Maintain a register of charges.
