Partnerships and LLPs Flashcards
LLP = member Partnership = partner
Can partnership agreements be implied by conduct?
Yes
(partner acted certain way over period and no one objected)
’ income and capital will be shared equally subject to contrary agreement, express or implied
(s 24 Partnership Act 1890).
e.g. shared in same proportions for many years combined with their initial contributions amounts to implied agreement
What may wish to include in written partnership agreement?
(not job contract - partnership agreement)
- **Full attention/no side hustles **
(nb: non-compete clause implied under PA) - Decisions: decide more can be taken unanimously or delegated
- initial capital contributions and any future expected contributions
(capital = initial contribution to business) - Ownerships of capital and if interest on contributions
- ‘drawings’ (i.e. income profits) entitled to
- How much income can draw out in what period
- Ownership of assets
- Expulsion
- Retirement/termination conditions (notice period, in writing, not in first year)
- Partial dissolution
- Payment outgoing partner’s share
- Indemnity for outgoing partner
- Build in time to find buyer
- Restraint of trade clause
- Disputes no courts re agreement interp
- Terms agreed between selves
- Repeat parts of P Act
If in practice a partnership commences before the date on Partnership Agreement, what is partnership governed by?
PA 1890 UNTIL date in agreement - then agreement applies
If partnership continues after expiry date on agreement, what are they governed by?
pre-existing agreement not the PA
so some partnerships are only intended to last for a fixed term, e.g. for a specific purpose
so the partnership agreement will last for a fixed term
if stop carrying on business at that point, partnership ends
if carry on business after fixed term and don’t enter into a new agreement, presumed to be partners on same terms as before
(so its the pre-existing agreement)
Three exceptions where decisions in a Partnership don’t not to be made by a majority and how must be made?
- Changing nature of the business🌸🐒
- Introducing new partner 👩💼
- Changing terms of the partnership agreement 📜
Unanimously
Default PA 1890 position on capital, income and losses, and when can rebut?
Common provisions rebutting PA.
Default: share capital, profits and losses equally
May vary
eg if one contributed more capital - more capital
eg interest on capital contributions to encourage investment
eg works more - more income
eg if make loss - will salaries be awarded?
Case law = may imply by course of conduct that OWN (!) capital profits unequally
(nb: only capital - think 3 C’s, capital/case law/conduct)
(capital = money contributed, capital profits = one-off gains e.g. inc value to premises, income profits = eg trading profit/rent)
What is word for income profits which general partners receive?
Do they get a salary under PA?
Alternative to receiving a salary in a partnership?
Drawings
No - just equal share in income profits
(but some partnerships can also receive salary)
Share in surplus profit
Can a partner ever be expelled?
(default under PA and how often amended)
PA: No, unless the partners have expressly agreed to it
(usually in a partnership agreement)
So often partnership agreement will include expulsion clause
(eg acted in certain way/poor performance)
Who owns partnership assets?
Even if owned by partners, becomes partnership property if:
- brought into partnership stock
- bought on account of firm
- acquired for purposes of partnership business
^ presume if partnership money
^ agreement can state what regard as partnership assets
^ all about intention if rebutting
Default position under PA - when does partnership end?
Any partner can end at any time by giving notice of intention that wish partnership to end
(still need to give notice)
- immediate effect and not need to be in writing😳
(aka a partnership at will)
Automatic dissolution:
- Any partner retires 👵
- Expiry of fixed term 📆
- DEATH or BANKRUPTCY any partner ☠️ 💷
- something happens which makes unlawful to continue business (e.g. no licence) ⚖️
- If one partner has granted legal charge over their share of partnership property for debt owned by them personally and other partners give notice of dissolution to them 👨⚖️
When can partners apply to court to DISSOLVE (!) partnership under PA1890?
Better alternative?
- Partner becomes permanently incapable of performing their part 🫁
- Conduct prejudicial to business 🐍
- Wilfully or persistently breaches agreement 👊👊👊👊
- Can only carry on at a loss; or ➖
- Court thinks just and equitable for other reasons 🧚♀️
Provisions in agreement stating when can eXPEL
Effect of automatic dissolution
(ie where outgoing partner ends partnership)
UNLESS ALL PARTNERS AGREE OTHERWISE:
- Partnership ends
- All assets sold OR partnership sold as going concern
- Outgoing partner has to receive their share
Outgoing partner can insist on business sold
^ meaning no option to continuing in businses and paying them
e.g. leaving partnership, setting up new business, needs money - asks for his share/being bought out - they can’t afford to do it straight away, so he insists on assets being sold
What should be included in PA regarding dissolution
- If one partner leaves, the remaining partners will continue in partnership.
- Do remaining partners have option to or must they buy outgoing partners share?
- how valued?
- when paid? instalments preferable. - Indemnity for outgoing partner if their liabilities taken into account when their partnership share was valued
(e.g. I think if when they were working out how much to entitled to on exit, they deducted some to keep in bank account to pay creditors)
If partnership agreement does not state how to pay outgoing partner’s share, what is the default?
either
- interest at 5% per annum on the value of their share until they receive their share from the other partners, or
- such court considers attributable to the use of their share.
E.g.
- 3 partners, each contributed 30k, one is leaving
- assets are worth 210k but owe 60k to creditors
- therefore entitled to 50k (210k - 60k divided by 3)
E.g.
- 3 partners, 330k income profits and debts of 60k
- 330,000 / 3 = 110,000 income profits each
(^ income profits will include any salary entitlement!)
- 60,000 / 3 = 20,000
- 110,000 - 20,000 = 90,000
If no partnership agreement, what could retiring partner who needs the money do?
Insist on all partnership assets being sold
(could mean need to sell to a third party)
What does it mean if partnership is sold as a going concern?
Impact on partnership agreements?
Part of PP reflects reputation and value of clients/contacts
No goodwill if just selling assets individually
So build in time to allow to find a buyer rather than having to sell assets
own idea:
e.g. DISSOLUTION
1. The Partners are entitled to 12 months commencing on the date of dissolution to find a buyer to purchase the Partnership as a going concern.
How can you increase likelihood of business being sold as going concern?
Don’t sell partnership assets separately
Terms in PA that build in time to find buyer instead of having to sell assets individually to raise money quickly
When partnership sold, how are proceeds of the business and assets to be used (unless specified otherwise)?
- first pay creditors in full and if shortfall, private assets (sharing losses as agreed)
- Repay partners loans inc interest
- Pay partners their share of entitled capital (!!!)
- Share surplus as agreed
(ahh so creditors loans, partners loans, partners capital contributions, surplus)
Do partners have authority to act in winding up?
Yes, as long as not bankrupt or deceased
If they are, their trustees or PR can make an application
What is a restraint of trade clause and when will it be enforceable?
Restricts partners dealings once left
Only if protects legitimate business interest (e.g. confidential info, goodwill)
No wider than reasonable
- Non-poaching (employees)
- Non-solicit (not solicit business from clients i.e. approach directly)
- Non-compete (with business)
- Non-dealing - can’t enter CONTRACTS with clients/former clients or employees - even if they approached u (more restrictive)
(non-compete, non-solicitation, non-dealing)
Duties of partners to each other under PA 1890
-
Open with relevant info
(e.g. Becky - he was on the land calling B) -
Account any private profits earned via partnership without others consent
(e.g. did stp cls without tleling u and kept th e£ for jacquem bag) - Not compete without consent - if so, account for and pay over any profits
(Made MBW)
(will transfer u now bbe x)
(bound even if do not include in agreement)
When is THE PARTNERSHIP (!!!) OR LLP (!!) liable to third parties?
- Contracts (signed by all partners or just one)
- Actual authority
- Express
- Implied - Apparent authority
Implication of partnership being liable
Gives creditor right to sue many one or all of partners for entire amount instead of just the one who signed the contract
When will a party have ACTUAL authority to sign on partnership or LLP’s behalf? (meaning firm bound)
- Expressly given one partner permission to do on firm’s behalf (e.g. partnership agreement)
e.g. purchasing partner in control of raw amterials - Impliedly accepted
regular course of dealing where don’t object, or
all partners run partnership without limitations
note express / implied usually responsibility for a specific thing
