Partnerships Flashcards
(36 cards)
How is a partnership formed?
Automatically when two or more partners agree to run a business together for profit. Can be formalised in a partnership agreement but it would still predate the agreement and if there is not one the terms of the Partnership Act 1890 will apply
How are profits split in a partnership?
Equally unless specified otherwise in partnership agreement (PA)
what happens if a partner breaks a term in the PA?
Breach of contract rules apply plus whatever actions are stated in the PA
How are matters approved in a partnership?
Simple Majority vote unless PA says otherwise, one vote per partner
What issues should be covered in a PA? (10+)
Name, place and nature of business (how to change name), investment split, profit and loss split, roles of each partner, salaries, distribution on sale of assets, working hours, rules around P working elsewhere, duration of the Partnership, terms for dissolution/retirement/expulsion, restraint of trade, terms for paying off departing partner, distribution on dissolution, arbitration clause
Under the PA 1890 what can happen to a partner that can force partnership to dissolve?
Bankruptcy
Retirement
end of partnership term
death
charge brought against share held by a P
Can partners vote to remove another partner?
Not under the PA but usually expulsion clause is added to partnership agreement
how long do partnerships last?
At will unless set up with a fixed term. This means they end when a partner leaves unless provisions are put in place for succession e.g. appoint new partner or have a notice period of say six months to deal with dissolution
When is a unanimous vote needed under the PA ?
Appoint new partner or change in the business type. New partners are not liable for debts that pre-date their joining
Which provision of PA cannot be amended in the agreement?
Dissolution of company if its activities become unlawful
What are the partners duties ((5)
- Transparency
-Account for private profits made re partnership without consent - No competing with partnership without consent
- Indemnify partners whose liability exceeds agreed amount
When is a partnership liable for a contract?
- Entered into jointly y multiple partners
-Single partner signs but has actual authority - Single partner signs who has implied authority and conditions are met
What are the 4 conditions re apparent authority that would make all partners liable?
- contract relates to type of biz typical of partnership
- contract is of the type that P could be expected to enter (e.g. not disproportionate in value)
- counterparty did not know was not authorised
-counterparty knew believes other to be a partner
If all 4 do not apply then P has sole liability
What is holding out?
When a retired partner conducts business as if they are still partner, the other party relies on the fact they are still a partner when agreeing to the business (and has no knowledge that they are not) and the partnership benefits from the biz.
Ex-partner who has been holding out would be liable for debt
What are some ways that holding out can be evidenced?
Partners name still on website or letterhead
Retiring partner does not take action when partnership suggests they are still active
steps not taken to notify suppliers that P is retiring eg gazette and send s36 notice
Who is liable for debt when a P retires?
P remains liable unless steps taken. For pre-retirement debt can get indemnity form other Partners or have debt novated to new partner
Post retirement debt must send s36 notice to all know connections, do gazette notice and take out indemnity in order to avoid ongoing liability
Who can a creditor claim against for unpaid debt?
1) any partner at the time the debt was incurred
2) partner who signed agreement
3)retired partner who is holding out
4) the partnership
who is liable if a partner commits a tort eg negligence and is sued?
If they were carrying out partnership business or with the co partners authority then the partnership is liable if not just the partner
If a claim is brought against a sole partner and they have been acting appropriately on behalf of the partnership what happens?
Partner reclaims from other partners as they are jointly liable.
What options are available if a partnership becomes insolvent?
1) Voluntary arrangement
2) Creditors petition
3) Members petition
4) Administration
What can a creditor do if their debt cannot be settled from an insolvent partnership’s assets?
Bring bankruptcy order against one or more of the partners
Under what circumstances might a partner apply to court to have the partnership dissolved?
1) Partner perm incapable of performing role
2) partner guilty of conduct that would be prejudicial to running of business
3) Partner commits a serious breach or conduct issue that means it is not reasonable practicable to continue running without them
4) Partnership running at a loss
5) Other issue that court determines means partnership cannot continue
How is an LLP formed?
2 or more people (known as initial subscribers) who will carry on a lawful business with a view to profit. Can be individuals or corp, no requirement to have an agreement and if no agreement they are governed by the LLP Regulations 2001. Sep legal personality
What are the naming conventions for a partnership?
Must contain names of all partners or apply for a waiver, if more than 20 partners requirement is waived
