business law Flashcards
As a result of the outgoing partner’s withdrawal and the third party’s admission to the partnership, which of the following statements is correct as regards the third party?
Responses
Under the Partnership Act 1890 (‘PA’), a partner in a general partnership has the right to participate in the management of the partnership. A new partner may be admitted with the consent of all the partners. That is what happened here. Since the third party was admitted as a partner, they have a right to participate in management.
A partner at a small print shop recently ordered paper from the shop’s regular supplier at a cost of £5,000. The partner did this in the partnership name and without the knowledge or consent of the other partners because the supplier offered the partner a large discount if they placed the order there and then. The partnership agreement states that each partner can enter into contracts of up to only £1,000 without the consent of the other two partners.
Which of the following statements correctly states the legal position as to the partnership’s liability on the contract?
Any partner is liable for the full amount of a partnership debt. Under the Partnership Act 1890, every partner is an agent of the firm and the other partners for the purpose of the business of the partnership. A partner who carries out business of the kind usually carried on by the firm will bind the firm and the partners. The exception to this is if the partner does not actually have the authority to act for the firm, and the person with whom the partner is dealing either knows that the partner has no authority, or does not know or believe the partner to be a partner. The purchase of paper for a printshop from the printshop’s regular supplier appears to be the carrying on of regular business, and there is no indication that the supplier had knowledge of the limitation on the partner’s authority. Therefore, the partnership will be liable for the debt based on apparent authority
A few years ago, six friends formed a partnership to operate a florist’s shop. The partners agreed how to share profits and losses, but the partnership agreement did not contain any other terms. One partner would like to assign his interest in the firm and the remaining partners would like to make the assignee a partner.
Which of the following statements best describes the legal position?
Responses
The partner can assign his interest in the firm, but the assignee does not become a partner unless all partners agree to make the assignee a partner.
retiremeny of partner in the partrnership
Where a person deals with a partnership after a change in its constitution, they are entitled to treat all apparent members of the old partnership as still being members until notice of the change has been received. Therefore, a retiring partner needs to discharge themselves from liability for future debts of the partnership by giving notice of their retirement. Actual notice should be given to existing creditors, and notice by way of an advertisement in the London Gazette is required for new customers.
Three friends set up a hardware shop as a partnership several years ago. They agreed how much time they would devote to the business and how they would share profits, but they did not discuss any other terms. Two of the partners now wish to expand the business by buying another hardware shop but the third is concerned that they do not have enough time to successfully run another shop.
Which of the following decisions can the two partners make without the agreement of the third partner?
The two partners may agree to buy another shop. As a general rule, decisions in a partnership require only a simple majority vote unless the partnership agreement provides otherwise. However, there are a few decisions that require unanimity (unless the partnership agreement provides otherwise). These are: the introduction of a new partner, a change in the nature of the partnership business, an alteration to the partnership agreement, or the expulsion of a partner. Buying a new hardware shop is still carrying on the same business, so the decision to buy the second shop can be made by the two partners. (B) is incorrect as the introduction of a new partner requires unanimity
Four university friends formed a partnership to sell games. They have agreed to share profits and losses equally. A supplier is pursuing the partnership for an unpaid debt.
Which of the following statements best describes whether the partners are personally liable for the debt?
Partners have unlimited personal liability for the debts of the partnership. Therefore, (D) is incorrect. The liability is joint; that is, a creditor can choose to pursue one or all of the partners on a partnership debt (although the creditor can receive full payment only once). Because the partners share the profits and losses equally, each individual partner would be responsible internally for 25% of the debt. This means that any partner who pays the full amount of the debt can seek reimbursement from the other partners for the remaining 75%. However, the fact that a partner can seek reimbursement from the other partners does not affect the partner’s direct liability to the creditor for the full amount.
Four university friends formed a partnership to sell games. They have agreed to share profits and losses equally. A supplier is pursuing the partnership for an unpaid debt.
Which of the following statements best describes whether the partners are personally liable for the debt?
Partners have unlimited personal liability for the debts of the partnership. Therefore, (D) is incorrect. The liability is joint; that is, a creditor can choose to pursue one or all of the partners on a partnership debt (although the creditor can receive full payment only once). Because the partners share the profits and losses equally, each individual partner would be responsible internally for 25% of the debt. This means that any partner who pays the full amount of the debt can seek reimbursement from the other partners for the remaining 75%. However, the fact that a partner can seek reimbursement from the other partners does not affect the partner’s direct liability to the creditor for the full amount.
Three friends set up a business specialising in ethical jewellery as a partnership 10 years ago. On 1 August, one partner retires and is replaced by a new partner that same day. The partnership notified existing creditors of the change on 3 August.
The partnership entered into a contract to buy diamonds from an existing creditor on 2 August and a contract to buy emeralds from a different existing creditor on 5 August.
Which of the following best describes the liability of the retiring partner and the new partner?
Responses
The retiring partner will be liable for the diamond debt only and the new partner will be liable for both debts. Every partner is liable for debts of the partnership incurred whilst the partner was a partner. An outgoing partner will be liable for debts incurred by the partnership after they leave unless they give notice of their withdrawal. Existing creditors must be given actual notice and other potential creditors can be given notice by publication. Here, as the actual notice was received on 3 August, the retiring partner is liable for debts incurred before that date. (A) and (C) are incorrect as the new partner is liable for all debts incurred whilst he was a partner.
withdrawal from partnership
A partner can withdraw from a partnership at any time. Unlike a limited company or a limited liability partnership, a general partnership has no perpetual succession. This means that if there is any change in the partners, this effectively brings the partnership to an end. In reality what is likely to happen is that the partnership will continue in a newly constituted form, but legally a partnership has no separate existence from its owners so the withdrawal would result in the dissolution of the partnership.
voting llp
Ordinarily, voting of members is determined by a show of hands with each shareholder having one vote. So the two minority shareholders would be able to outvote the majority shareholder. However, it is open to five shareholders or more, or shareholders with more than 10% of the voting rights or 10% of the paid-up capital of the company to demand a poll instead. A poll changes the voting from one vote per shareholder to one vote per share. It is therefore open to the majority shareholder to demand a poll, which would affect the outcome of the vote.
payment of dividend
The model articles of association provide that the payment of a dividend must be recommended by the board of directors before it can be declared by the shareholders by an ordinary resolution. (
payment of dividend
The model articles of association provide that the payment of a dividend must be recommended by the board of directors before it can be declared by the shareholders by an ordinary resolution. (
shortening theww notice period
If a majority in the number of shareholders who hold at least 90% of the shares agree, the notice period may be shortened
private limited liability company
A private limited company is required by law to have a minimum of one director and one shareholder, but there is no legal requirement for a company secretary
derivative claim
A derivative action is brought on behalf of the company, and any damages awarded belong to the company.
