Partnerships - Partnership Agreement Flashcards
(19 cards)
What is the purpose of a partnership agreement?
To expressly set out how a partnership will operate, overriding many default provisions of the Partnership Act
When does a partnership under the agreement commence?
On the date specified in the agreement; if partners act earlier - PA governs until commencement date
What happens if partners continue beyond a fixed-term agreement without renewal?
They are presumed to continue on the same terms
How is partnership property defined under PA?
- Property brought into the partnership for firm purposes is partnership property
- Property bought with partnership money is presumed partnership property unless shown otherwise
What is the default rule for sharing capital and profits under PA?
Partners share equally, regardless of unequal contribution, unless otherwise agreed
Are partners entitled to a salary under PA?
No
What are drawings in a partnership?
Income profits withdrawn by partners; the agreement should regulate how much and when drawings are allowed
What does PA say about management participation?
Every partner may take part in management but is not required to
How are decisions generally made in a partnership under PA?
- Ordinary business - majority decision
- Changes to business nature - unanimous consent
- Admission of new partners - unanimous consent
- Variation of rights/duties - unanimous consent
Can a partner be expelled under PA without prior agreement?
No - requires express agreement for expulsion by majority vote
Why include express expulsion provisions?
To allow for partner removal without dissolving the partnership
What happens if a partner leaves and there is no agreement?
The partnership is automatically dissolved under PA
How can automatic dissolution be avoided?
By including a clause stating that the partnership continues among the remaining partners
What happens if a partner competes with the firm without consent?
Under PA - they must account for any profits made and pay the firm all profits made by him
What types of post-departure restrictions can a partnership agreement impose?
- Non-compete clauses
- Non-solicit clauses
- Non-dealing clauses
All must be reasonable and enforceable
How can a partnership be dissolved under PA?
- Expiry of fixed term
- Completion of venture
- Death or bankruptcy
- Notice (no fixed term)
- Illegality
- Court Order
What happens to surplus assets on dissolution?
- Partners are repaid original capital first
- Remaining assets distributed according to agreed Asset Surplus Ratio (ASR)
- If no ASR, by Profit Sharing Ratio (PSR) or equally under s.24(1)
Asset Surplus Ratio?
Agreed ratio between partners for distributing assets on dissolution of the partnership
Profit Sharing Ratio?
Agreed ration in which partners share profits and losses during the life of the partnership
