Partnerships Flashcards
If there is profit sharing, will there be a partnership?
Evidence of profit sharing is prima facie evidence of a partnership but this is not conclusive
What are the statutory guidance requirements for forming a partnership?
s2 Partnership Act guidance:
- evidence of profit sharing = more likely partnership
- Agreement to share profits and losses
- All individuals taking part in decision making
- Loans do not create partnerships
Definition of a partnership
s1(1) PA - partnership = a relationship between persons carrying out on a business in common with a view to making a profit
What is the fiduciary relationship of partners to each other similar to?
The duty owed by a trustee to a beneficiary
List the equitable principles governing the fiduciary relationship between partners.
- Honest and full disclosure
- Unauthorized personal profit
- Conflict of duty and interest
How is a partnership formed?
No intention or set up costs required - just intention to carry on a common business
What type of liability do partners have for partnership debts?
Personal liability
Contract - joinly liable s9
Tortious liability - jointly and severally liable s10 and 12
Are new partners automatically liable for debts incurred before they joined?
No - but they will still be liable after they retire for debts incurred whilst they were a partner
s17
What is required for a partner to be released from liability after leaving?
Novation of the agreement with the consent of the creditor
How can a third party treat all partners regarding new debts after a partner leaves?
3P can treat all apparent partners as jointly liable unless that 3P is notified of the change by:
- actual notice (for those who had dealings with the partner before departure)
- constructive notice (in London Gazette, for those who did not have dealings with the partner before departure)
When can non-partners be liable for partnership debts?
If they held themselves out as being liable for partnership debts (s14). Three requirements:
* A representation to a third party that a person is a partner
* The third party’s action in response
* The third party’s state of mind
When is the firm bound by actions of a non-partner?
Under the common law principles of agency
This highlights the need for tailored partnership agreements.
What is the cost of forming a partnership?
Costs nothing, no formalities
What can the partners do if they are content with an agent’s act (whether the agent is a partner or non-partner)?
- firm bound if the agent was given express, actual or implied authority
- even if no authority, the firm can enter into the contract and ratify the decision
Will the firm be bound by a partner’s act even if the other partners are not happy with that act?
Yes:
- s5 PA - the firm will be bound if the act is for carrying on businesss of the kind carried on by the firm OR the act is for carrying on the business in the normal way
Can a partner bind the firm against the wishes of other partners?
Yes, a partner can bind the firm under statutory authority even if other partners are not happy.
When will the firm not be bound by a partner’s act?
The firm will not be bound if the third party knew the partner was not authorized or did not believe or know the partner was a partner.
What liability does a partner have when binding the firm without actual authority?
A partner may be liable to the other partners for breach of contract.
What is the power of a non-partner to bind the firm?
A non-partner can bind the firm against the partner’s wishes through apparent authority at common law (actual or express)
Can an agent without actual authority still bind the firm?
Yes, an agent may bind the firm if they have apparent authority to enter into a contract - i.e representations were made to a 3P that the person had authority
Who is liable to tax in a partnership?
Each partner is liable to tax as an individual on their share of gains/income.
What does HMRC require from partnerships regarding tax returns?
HMRC requires a partnership to make a single tax return of profits.
What must partners submit in addition to the partnership tax return?
Partners must also submit their own individual tax returns.
Who is liable for income tax on partnership profits?
Each partner is liable for the income tax on their share of the partnership profits.
