Partnerships

Question 1

Define a partnership.

Answer 1

1. Two or more people
2. Carrying on a business in common
3. with a view of profit (the test being one of intention)

Question 2

What is the prima facie test for whether a person is a partner?

Answer 2

Whether he receives a share of the profits of the business

Question 3

What is the PA’s default term on profit-sharing?

Answer 3

All partners entitled to an equal share of any profits.

Question 4

3 points on partners’ liabilities

Answer 4

1. All partners jointly liable for debts and obligations.
2. Partners jointly and severally liable for any wrongful acts in the firm’s name or any misapplication of a third party’s property in the firm’s name
3. All partners jointly and severally liable for negligence by one partner provided committed in the ordinary course of business

Question 5

When will a partner be liable even after leaving the firm?

Answer 5

For things that occurred while they were still partners.

Question 6

When does a partnership without a fixed term expire (3 situations)?

Answer 6

1. Death or bankruptcy of any partner; or
2. One partner giving the others notice of his intention to dissolve it, or
3. Court dissolves the partnership due to (i) conduct prejudicial to the business; (ii) wilful or persistent breaches of the partnership agreement or conduct affecting the relationship; (iii) business can only be carried on at a loss; or (iv) just and equitable grounds.

Question 7

Order of priorities on dissolution of a partnership?

Answer 7

1. Debts and liabilities to NON-PARTNERS
2. Repaying partners for ADVANCES given to partnership
3. Repaying partners their share of firm’s CAPITAL
4. RESIDUE is distributed in the same proportion as firm’s profits

Question 8

Two differences between limited partners and general partners?

Answer 8

1. Cannot withdraw any part of their FIXED CAPITAL CONTRIBUTION during the lifetime of the partnership (otherwise will be liable up to the amount withdrawn)
2. Cannot BIND the firm or take part in its MANAGEMENT (otherwise jointly liable with general partners for any debts or obligations incurred during that period of management)

Question 9

3 administrative requirements if partnership name is not the name of all partners?

Answer 9

Names and address for service must be

1. Displayed on all stationery
2. Displayed by notice at each place of business
3. Given to anyone with whom the partnership has dealings

Question 10

Threeduties partners owe to each other?

Answer 10

Partners are fiduciaries.

1. Obligation to disclose relevant info to other and prospective partners (breach is actionable per se)
2. Account for unauthorised personal profit (held on trust for the partnership)
3. Not to compete with the firm by carrying on a business of the same kind

Question 11

When are partners entitled to an indemnity from their fellow partners?

Answer 11

Where he incurs a personal liability or pays out of his own funds

1. In the ordinary course of business or
2. For anything necessarily done for the preservation of business or property

Question 12

Normal voting threshold for decisions? Two exceptions? How many votes to expel partner?

Answer 12

Simple majority sufficient to decide ordinary matters, but unanimity required for (i) change in nature of partnership business; and (ii) new partners joining.

No majority can expel a partner unless the partnership provides.

Question 13

When is a partnership not bound by the acts of a partner?

Answer 13

1. Partner has no actual or apparent authority to do that act
2. The 3P knows he has no authority or does not know or believe him to be a partner

Question 14

What does S.14 (“holding out”) refer to?

Answer 14

Anyone who represents himself as a partner will be liable to 3Ps who rely on the representation.

Question 15

Minimum number of members for LLPs? Consequence of falling below?

Answer 15

Need at least two, because minimum number of designated members (i.e. those responsible for delivering accounts, appointing auditors, preparing annual confirmation statements) is two.

If number of members falls to 1 for more than 6 months, LLP will lose its limited liability status and all members will be jointly and severally responsible for all the LLP’s liabilities.

Question 16

When will members of an LLP owe fiduciary duties to one another?

Answer 16

1. Acting as an agent of the LLP
2. Duties specified in partnership agreement
3. One member has assumed responsibility for another’s affairs or property

Question 17

3 steps for a member’s voluntary liquidation of an LLP?

Answer 17

1. Members make a formal declaration of solvency and file it with Registrar.
2. Determine that the LLP shall be wound up and appoint liquidator.
3. File a notice of determination in the Gazette within 14 days, with a copy sent to the Registrar within 15 days of the date of the determination

Question 18

4 steps for a creditors’ voluntary liquidation of an LLP?

Answer 18

1. Decision is made by a majority of members that the LLP can no longer continue business due to its liabilities.
2. Advertise resolution in London Gazette within 14 days.
3. Send copy of resolution to Registrar within 15 days.
4. Hold meeting of creditors within 14 days - creditors can interrogate members, or put forward an alternative liquidator. Designated members and any liquidator appointed must be present.

Question 19

Difference in liquidator’s duties between a compulsory and voluntary winding-up of an LLP?

Answer 19

Both cases, liquidator has duty to wind up affairs, sell LLP assets to meet creditor claims and distribute the remainder to members.

For compulsory liquidation, liquidator must investigate affairs and causes of failure.

Question 20

3 alternatives to compulsory liquidation of an LLP?

Answer 20

1. Administrative receivership - a QFCH can appoint receive to take charge of LLP and find a way to repay the debt
2. Voluntary Arrangement - 28 days moratorium to try and reach an agreement (proposal can only be accepted by creditors’ vote); then LLP is protected from legal action by creditors unless terms of CVA breached
3. Administration - administrator appointed to manage LLP’s affairs as a going concern for benefit of creditors as a whole