Partnerships Flashcards
What is the statutory definition of an ordinary partnership (generally just known as ‘partnership’)?
s.1(1) of the Partnership Act:
“The relation which subsists between persons carrying on a business in common with a view to profit.
Is it still a partnership if the partners’ do not actually make any profit?
Yes, so long as they have the intention to make profit.
How are partnerships created (two main ways).
- They are created either expressly by a partnership agreement or;
- Implied by law in accordance with the PA.
What questions can you ask yourself that can help you know if a partnership exists?
- Has a person been “held out” as a partner?
- Is propertly jointly held?
- Are there loans between the parties?
If yes, there is most likely a partnership (but not conclusive).
Is a partnership a separate legal entity?
No, it must act through its partners.
The partners are collectively known as a…
firm
Who can bind the firm?
- Each partner is able to bind the firm as they act as ‘agents’ of the firm (unless agreed that a partner has no authority to act on the matter)
- Anyone else that is authorised to act on the firm’s behalf.
What type of relationship do all partners share with the firm and what does this mean?
They share a fiduciary relationship with the firm which means that they have a duty not to compete with the firm by carrying on a similar business without permission of other partners.
What can partners do to avoid any ambiguity or dispute about the terms of the partnership?
They can have a written agreement outlining all the terms.
- This can also be varied with the consent of all of the partners.
What would happen if a partnership does not have an express written or oral agreement?
The PA 1890 would imply terms into their partnership (this may be undesirable).
What is one of the greatest advantages of a traditional partnership?
It is a highly flexible business structure - partners can choose between a great variety of voting structures and means of dividing profit.
What are the 3 types of partners in a partnership?
- Full Equity Partner
- Fixed Equity Partner
- Salaried Partner
What is a Full Equity Partner?
A full equity partner is entitled to a non-fixed share of the firm’s profits (calculated as %)
Do all full equity partners need to be entitled to equal contributions?
No
What is a Fixed Equity Partner?
Fixed equity partners are entitled to a fixed, pre-determined amount of profit.
- Depending on the firm, they may have less voting rights than a full-equity partner.
What is a Salaried Partner?
A salaried partner receives a salary rather than a share of any profits.
- They will normally seek an indemnity from the firm, as it is considered to be unfair for them to be personally liable for the firm’s debts if they do not take a share of the firm’s profits.
What does it mean if all partners are ‘jointly liable’ form the debts and obligations of the firm
Any one of them may be sued personally for the debts of the firm.
What does it mean if the partners are ‘jointly and severally’ liable for any wrongful acts/misapplication of TP property?
Even if just one partner was negligent, the tp can choose to sue any of the partners or even all of them.
Can a partner be held liable for wrongs done before they became a partner?
No
Can a partner be held liable for wrongs done after they had already left the firm?
No
If wrongs occurred whilst a partner was still part of the firm but had later left, can they be held liable?
Yes they still can be held liable unless the creditors and other partners agree to discharge them from these obligations.
If a partner makes a payment on behalf of the firm, does the firm have to indemnity them?
Yes, unless otherwise agreed.
Who makes up for the shortfall if the firms make a loss(es)?
All partners contribute equally to any losses made by the firm.
When are partnerships dissolved?
- After the agreed fixed term
- Or if for an undefined time, it will be dissolved upon 1 partner giving the other(s) notice of intention to dissolve.
- Upon the death or bankruptcy of any partner.
