Partnerships

Question 1

How do ex-partners avoid debt liability according to the standard partnership agreement? (after giving notice)

Answer 1

The Partnership Agreement (Clause 20.3.2) state that the valuation of a retiring partner’s share will take account of “The debts and liabilities of the Partnership to persons other than the Partners”.
^Meaning they have paid their equal share of their debts
Third-parties may still sue the ex-partner but the current partners must indemnify her. (Clause 20.6)

Question 2

Are ex-partner liable for any debts?

Answer 2

Ex-partners will still be liable for contracts entered into while they were represented as partner, but not for new debts incurred after they have left.

Question 3

How must a partner give notice that they are leaving?

Answer 3

Anyone dealing with the partnership is entitled to treat the apparent partners as still being partners until they have notice s.36(1)

For those who have not dealt with the firm previously, an advertisement in The London Gazette constitutes sufficient notice – s.36(2). The other partners are obliged to do this Clause 20.8

For those who have dealt with the firm while they were partner, must give actual notice of their retirement to If they don’t raise it themselves, their solicitors can be expected to do so, and Clause 20.8, the rest of the partners are required to send a circular letter.

Question 4

What happens if an ex-partner is still represented as partner?

Answer 4

Every person who knowingly allows themselves to be represented as a partner is liable to anyone who has given credit to the firm on the faith of that representation – s.14.

Must request name to removed from all letter headings.

Question 5

What is a summarised checklist for leaving partners?

Answer 5

1. Give actual notice to existing customers
2. Give notice to future customers in the London Gazette
3. Remove name from letterhead/website etc. to prevent holding out

Question 6

Using the statutory partnership agreement how can a new partner be introduced or expelled?

Answer 6

Only by unanimous agreement (including the agreement of the partner to be expelled)

Question 7

Using the statutory partnership agreement how can contracts be entered into?

Answer 7

By majority decision provided they are of ordinary matters connected to the business

Question 8

In absence of an agreement. on profit share, how are profits shared in a partnership?

Answer 8

Equally, even if they have contributed different amounts of capital/ work hours

Question 9

When is a partnership bound by one partners contract?

Answer 9

If they had apparent authority

Question 10

What is the test for apparent authority when a partner solely enters a contract in a partnership?

Answer 10

Four-part test -
- Does it relate to the type of business carried out by the partnership? (Objective test)

• Is the transaction one which a single partner in such a firm would
  usually have the authority to act (Objective test)
• Did the other party to the transaction know that the partner lacked actual authority? (Subjective test)
• Did the other party know or believe that the person was a partner at the
  time of the transaction? (Subjective test)