General Partnerships

Question 1

What type of act must a partner make to bind the firm through apparent/ostensible authority?

Answer 1

An act carrying on the business of the firm in the usual way

Would a reasonable person think a business of this kind would usually do this act? What authority would a reasonable person expect a partner in such a business to have?

Question 2

What four things have case law shown partners will have the authority to do?

Answer 2

1. Buy and sell firm goods
2. Receive debt payments due to the firm
3. Hire employees
4. Employ a solicitor to act for the firm

Question 3

What is the holding out rule?

Answer 3

If a person holds themselves out to be a partner even if they are not, they may be held liable as a partner if any third party extends credit on the strength of the holding out.

The same is true if a person knowingly allows another to hold them out as a partner.

Question 4

Whilst most decisions require a simple majority vote, what three decisions require unanimity?

Answer 4

1. Admission of a new partner
2. Change in the nature of the partnership business
3. Alteration to the partnership agreement

Question 5

How is a partnership dissolved by death, bankruptcy or charge?

Answer 5

A partnership is dissolved if:
1. Any partner dies (automatically)
2. Any partner becomes bankrupt (automatically), or
3. Any partner charges their share of profits to pay off a personal debt (at the option of the other partners)

Question 6

What are the fives reasons a partnership may be dissolved by court order?

Answer 6

1. Permanent incapacity of a partner
2. Prejudicial conduct
3. Willful or persistent breach of partnership agreement
4. Business can only be carried on at a loss
5. Just and equitable

Question 7

When a partnership is dissolved, what is the order of entitlement to assets?

Answer 7

1. Debts owed to outside creditors
2. Loans made by partners
3. Partners’ capital contributions

If partnership assets are insufficient to repay creditors, partners are personally liable

Question 8

Under the Partnership Act, what is the order by which losses should be paid?

Answer 8

Losses should be paid from:
1. Profits, then
2. Capital, then if necessary
3. Further contributions by partners