2 - BL - Partnerships

Question 1

What is the definition of a Partnership?

Answer 1

A relationship between persons carrying on a business in common with a view to making a profit

Question 2

There is an overriding duty of good faith in a partnership. What are those duties?

Answer 2

· Honest and full disclosure 😇
· Conflict of duty and interest 🗡️
· Unauthorised personal profit 🤑

Question 3

Are the partners are personally liable in relation to contracts which are binding on the firm?

Answer 3

Yes

Question 4

Will a new partner automatically be liable in relation to any debts incurred by the partnership before they joined?

Answer 4

No

Question 5

Will a partner will still be liable after they retire in respect of debts incurred by the partnership whilst they were a partner?

Answer 5

Yes

Question 6

What type of liability do partners have?

Answer 6

Joint and several - liable for whole debt but can claim off other partners

Question 7

If a partner leaves, a third party can treat all apparent partners of the firm (ie before the departure) as jointly liable to pay any new debt incurred by the partnership UNLESS What?

Answer 7

The person has been give:

• actual notice (s 36(1) PA 1890) - for those who have had actual dealings with the partner before departure; or
• constructive notice by virtue of publication of the departure in the London Gazette (s 36(2) PA 1890) -for those who have not had actual dealings with the partner before departure.

However, a former partner will not be liable for debts to any third party who did not know them to be a partner before they left. No notice at all has to be given to such persons.

Question 8

When can a non-partner (who was never a partner) be personally liable on a partnership debt?

Answer 8

If they have held themselves out as a partner (or have knowingly allowed themselves to be so held out).

Need:

(i) a representation, 🗣️

(ii) Reliance, and 👍

(iii) the third party’s state of mind (‘believing (having faith in) the representation’).🧠

It is important to appreciate that s 14 PA 1890 relates to the liability incurred by the NON-PARTNER, NOT the liability of the firm. The liability of the firm for the acts of a non-partner is established by applying the common law principles of agency.

Question 9

When will a Partner’s act bind the firm under s5 PA 1890?

Answer 9

• usual kind of business carried out

AND

• in the usual way.

Question 10

When will a Partnership NOT be bound by a Partner’s actions under s5 PA 1890?

Answer 10

the third party

• knew that the partner not authorised to enter into the contract on behalf of the firm; or 😈🎩
• did not know or believe that the partner was a partner. 🤷🎩

Question 11

What are the risks for a Partner if they bind their firm without actual authority?

Answer 11

They may be liable to the other partners for breach of contract.

Question 12

What rules apply to a non-partner who tries to bind the firm?

Answer 12

common law rules of agency apply

Question 13

When could a non-partner bind the firm under the common law rules of agency?

Answer 13

• held out as having authority to enter into a contract. 🤲🥸
  (the firm represents or permits a representation to be made to a third party that a person has authority to bind the firm).
• Firm ‘holding out’ that person as a partner.🤲🎩
  (e.g. firm carries on using old letterhead (including that partner’s name) after they retire).

Question 14

What is the default profit share of a partnership

Answer 14

Equal share

Question 15

How are most partnership decisions made?

Answer 15

by a majority

Question 16

Which partnership decisions require unanimity?

Answer 16

• Changes to the nature of the partnership business; 🏭
• Introducing a new partner; 👋🎩
• Varying the rights and duties of partners. ⛓️

Question 17

How can a partner be expelled under the PA 1890?

Answer 17

A partner cannot be expelled by majority vote unless all of the partners have previously expressly agreed that a majority can do this.

(so can’t be voted out)

Question 18

What is the default effect of a Partner leaving a firm?

Answer 18

the partnership is dissolved

Question 19

What is the default position on return of capital on dissolution of a partnership?

Answer 19

Subject to any written partnership agreement, once all debts and liabilities have been paid, any money/assets left will be distributed so that each partner is

• paid back their original capital first.

Then,

• per asset sharing ratio - if no ASR then:
• per Profit Share Ration - if no PSR then
• In equal shares

Question 20

Does an LLP have legal personality?

Answer 20

Yes

Question 21

Do LLP’s have to be registered?

Answer 21

Yes, at companies’ house

Question 22

What is the minimum number of “designated members” required from an LLP?

Answer 22

2

Question 23

What is the responsibility for a designated member of an LLP?

Answer 23

• Signing accounts
• dealing with Coy House
• Acting for LLP if wound up

Question 24

How does a member cease to be a member of an LPP?

Answer 24

• their death; ☠️
• dissolution (if the member is a body corporate).🫥
• agreement with the other members of the LLP;🤝
• giving notice to the other members of the LLP;📝

Question 25

If there is no partnership agreement, are there default provisions in place for LLPs?

Answer 25

Yes

Question 26

By Default: How do members share in capital and profits

Answer 26

Equally

Question 27

By Default: Does the LLP indemnify its memebers?

Answer 27

Yes - an LLP must indemnify its members for payments made and personal liabilities incurred by them in the ordinary and proper conduct of the business of the LLP

Question 28

By Default: Who takes part in an LLP's management

Answer 28

Every member

Question 29

By Default: Are members allowed to take remuneration for managing an LLP

Answer 29

No

Question 30

By Default: What is required to admit a new member of an LLP ?

Answer 30

consent of all existing members

Question 31

By Default: How is the ordinary decision making of the LLP decided?

Answer 31

Marjority

Question 32

By Default: Where are the books and records of an LLP available for inspection by the members?

Answer 32

At the registered office

Question 33

By Default: What duty is owed by members of an LLP ?

Answer 33

Each member must give - true accounts and - full information of - all things affecting the LLP - to any member or his legal representative

Question 34

By Default: What happens if a member of an LLP (without consent) carries on any business of the same nature as, and competing with, the LLP?

Answer 34

They must account for and pay over to the LLP all profits made by them in the business

Question 35

By Default: Does every member of an LLP has a duty to account for benefits derived from transactions with the LLP and its business or property

Answer 35

Yes

Question 36

By Default: Is there an implied right of expulsion of a memeber?

Answer 36

No, unless the members have expressly provided for such a power in a Members’ Agreement

Question 37

Who registers for VAT for an LLP

Answer 37

The LLP

Question 38

Why might an LLP be more disadvantageous than a company?

Answer 38

LLPs are subject to the ‘clawback’ rule, which means that in certain circumstances money taken out of the LLP by members up to two years before commencement of a winding up of the LLP can be clawed back into the pool of assets available to repay LLP’s creditors.

Question 39

Is a memorandum still needed for an incorporation?

Answer 39

Yes, but it just mentions the first members.

Question 40

What happens if an LLP is left with just one member?

Answer 40

There's a 6 month grace period and then the member becomes jointly and severally liable with the LPP after the grace period.