Traditional Partnerships Flashcards
What is the statutory requirements of a partnership?
- Carrying on business in common
- With a view to making a profit
Minimum number required for partnership?
Two
Is a partnership a separate legal entity?
No
Could a company be a partner?
Yes
What are two factors that could make a partnership more likely?
Profit share / loss sharing
All taking part in decision making
What are some advantages of a partnership?
- No cost in creating one
- No formalities
- No filing or disclosure
- High confidentiality
What type of relationship and duty arises between partners?
Overriding duty of good faith
What are some equitable principles that arise from the overriding duty of good faith in a partnership?
1) Honest and full disclosure
2) Unauthorised personal profit
3) Conflict of duty and interest
What are the types of liability partners have for partnership debt?
1) Contractual liability
2) Tortious liability
What is contractual liability in partnerships?
Every partner in a firm is liable jointly with other partners
What is tortious liability in partnerships?
Partners liability is joint and several
What happens if a creditor obtains judgement against a partner?
It does not discharge the others liability, so technically liability is joint and several
Is a new partner liability for debts incurred by the partnership before they joined?
No. They do not have liability for debts before they joined.
Is a retired partner still liable for debts that arose whilst they were partner?
Yes, unless they novate the relevant agreement with consent of creditor
Could a former partner be liable for new debt?
Yes, they can, if not notified of change
How would a partnership provide notice to creditor so that a former partner is not held liable for new debts?
1) Actual notice
2) Constructive notice
What is actual notice to creditors in partnerships?
Providing actual notice directly to creditors – for those who have dealt with the partnership before
What is constructive notice?
Publication in the London Gazette – for those who have not dealt with the partnership before
Could a former partner be liable for debts to a new third party who did not know them to be a partner before they left?
No, they can’t. And no notice is given.
Under what circumstances can a person who is not a partner have liability for a partnership debt?
If they hold themselves out as a partner.
What are the statutory elements of “holding out” as a partner?
i) A representation to 3rd party to give effect that person is a partner
ii) Third party’s action in response (giving credit to firm)
iii) Third party’s state of mind (believing in representation)
When would a partnership be bound by a non-partners act?
Through common law of agency – consenting for third party to act.
Either by actual express or implied authority.
What happens if a partner is not content with agent’s act?
They may still be liable as the law protects Third Parties.
What do the common law rules of agency do?
They establish whether or not the firm is bound as principal by a non-partner.
When could a non-partner bind a firm under the common law rules of agency?
If they have apparent authority to enter into a contract.
When does apparent authority arise?
When firm represents / permits a representation to be made to third party that person has authority to bind the firm.
What is an example of apparent authority?
If partnership name someone marketing manager, assumption that they can make marketing decisions.
What happens if a third party relies on that representation of apparent authority?
Then the partnership is bound.
Does “holding out” count as apparent authority?
Yes
What is an example of holding out?
An ex-partner, still on letterhead, after they retire, can still act as partner.
Can a firm be bound even if other partners not happy to be bound by contract made by another partner?
Yes, under s5
Who does S5 apply to?
It only applies to partners entering into a contract.
In s5, under what circumstances will a partner’s unauthorised act bind the firm?
1) Act is for carrying on business of the kind carried on by the firm;
2) Act is carrying on such a business in a usual way
When would the firm not be bound under s5?
1) Third party knew partner in question not authorised to enter into contract
2) Third party did not know or believe partner was a partner
What could happen to a partner of a firm who binds the partnership without having actual authority?
They may be liable to the other partners for breach of contract.
How are partners liable to tax?
As individuals on their share of income or gains of partnership
What does HMRC require of a partnership as a firm?
A single tax return of its profits
What does HMRC require of partners as individuals?
Individual tax returns containing all income and expenditure
What taxes are partners liable for?
1) Income Tax
2) Capital Gains Tax
Are partners liable for other partners tax?
No, doesn’t have anything to do with them.
How does CGT apply to partners?
Each partner treated as owning fractional share of asset. On disposal, will be taxed on their share of any gain.
