Partnerships- FS Flashcards
(21 cards)
How is a partnership legally defined under the Partnership Act 1890?
Under Section 1 of the Partnership Act 1890, a partnership is defined as the relation which subsists between persons carrying on a business in common with a view to profit.
What is one key feature that distinguishes partnerships from companies or LLPs?
No formal registration or compliance requirements are necessary to form a general partnership, unlike companies or LLPs.
Can a partnership be formed unintentionally?
Yes, a partnership can be formed without formal agreement, simply by two or more people carrying on a business together for profit.
Which section of the Partnership Act lists factors that indicate the existence of a partnership?
Section 2 of the Partnership Act 1890 lists non-determinative factors that may indicate whether a partnership exists.
Is the list of indicators in Section 2 of the Partnership Act 1890 determinative or conclusive?
No, the list is not conclusive. It provides guidance but must be considered alongside the factual circumstances.
What are some relevant factors in determining whether a partnership exists?
- How profits are distributed,
- Who participates in decision-making,
- Who owns the business’s assets.
Is the duration of time a business has been operating relevant to determining whether a partnership exists?
No, the length of time the business has been operating is not a relevant factor in determining the existence of a partnership.
Does sharing in profits alone always indicate the existence of a partnership?
No, sharing profits is a strong indicator, but it must be assessed with other factors such as management and asset ownership
Is mutual involvement in business decision-making a relevant indicator of a partnership?
Yes, shared participation in day-to-day decision-making supports the inference that a partnership exists.
How does shared ownership of business assets affect the determination of a partnership?
If individuals are jointly named as owners of business assets, it is a relevant factor suggesting the existence of a partnership.
Can partners in a general partnership draft their own partnership agreement?
Yes, partners are allowed to draft their own partnership agreement, which governs their internal relationship and business terms.
What happens if the partners do not create a bespoke partnership agreement?
The default provisions in the Partnership Act 1890 will apply automatically to govern the partnership.
Do bespoke partnership terms take precedence over the Partnership Act’s default rules?
Yes, bespoke terms generally override the default rules in the Act, except for certain sections that are mandatory and cannot be overridden.
Which sections of the Partnership Act 1890 cannot be overridden by a partnership agreement?
Sections 1, 2, and 5 to 18 of the Partnership Act 1890 cannot be overridden or ignored by a bespoke partnership agreement.
What is the legal status of Section 9 of the Partnership Act 1890?
Section 9 is mandatory and provides that every partner is jointly liable with the other partners for all debts and obligations incurred while they are a partner.
Is it necessary for a partnership agreement to be in writing?
No, there is no legal requirement for a partnership agreement to be in writing; it may be oral or implied by conduct.
Why is it advisable for partners to have a written partnership agreement?
A written agreement helps avoid uncertainty or disputes, and clearly sets out profit distribution, roles, and investment shares.
What is the primary legal function of Sections 1 and 2 of the Partnership Act 1890?
These sections define the legal formation of a partnership and set out the criteria and indicators for its existence.
Can partners exclude liability for firm debts through a partnership agreement?
No, liability for firm debts, as set out in Section 9, cannot be excluded or modified by a partnership agreement.
What is the relationship between the Partnership Act 1890 and a bespoke agreement created by partners?
he bespoke agreement governs the partnership unless it conflicts with non-derogable provisions in the Act (Sections 1, 2, and 5–18), which must still be followed.
What are the key non-derogable provisions in Sections 1, 2, 5, and 18 of the Partnership Act 1890 that cannot be overridden by a partnership agreement?
- Section 1: Defines a partnership as the relationship between persons carrying on a business in common with a view to profit. This is the foundational definition and cannot be changed.
- Section 2: Provides guidance on determining the existence of a partnership, including factors like profit-sharing, decision-making, and asset ownership. These indicators help courts assess whether a partnership exists and cannot be excluded.
- Section 5: States that every partner is an agent of the firm and their actions in the usual course of business bind the firm unless the partner lacks authority and the third party knows this. This section governs external relationships and is binding.
- Section 18: Deals with the duty to account for private profits. A partner must account to the firm for any benefit derived from a transaction concerning the partnership or use of partnership property, name, or connection. This fiduciary duty cannot be waived by agreement.
