Partnerships - Traditional Partnerships Flashcards
(15 cards)
What factors help determine if a partnership exists?
- Profit sharing is prima facie evidence
- Loss sharing and joint decision making also indicate partnership
- a loan alone or lack of being ‘held out’ is not sufficient
Can a partnership arise unintentionally?
Yes - a partnership can form without formalities or specific intent, based solely on the facts
What fiduciary duties do partners owe each other?
- Duty to honest and full disclosure
- No unauthorised personal profit
- Avoid conflicts of duty and interest
What is the liability of partners for partnership debts in contract and tort?
- Joint liability in contract
- Joint and several liability in tort
Does a judgement against one partner discharge the liability of others?
No, liability remains joint and several
Is a new partner liable for pre-existing debs of the partnership?
No, unless otherwise agreed.
What is the liability of a retiring partner?
They remain liable for debts incurred while they were a partner, unless discharged via novation with creditor consent
Can a former partner be liable for post-retirement debts?
Yes, unless 3rd party was notified of the retirement either:
- Actually
- Constructively (via notice in the London gazette)
How can a non-partner be liable under ‘holding out’
If they:
1. Represent themselves as a partner and knowingly allow this
2. The 3rd party relied on this and gave credit to the firm
When can a Partner’s Authority bind the Firm? (s.5 PA)
A partner can bind the firm if:
- The act is in the usual course of business, and
- The 3rd party believes them to be a partner and has no knowledge of lack of authority
When does s.5 of the PA not apply?
If the person entering the contract is not a partner; common law agency applies instead
What is apparent authority at common law?
When a representation is made by the firm that someone has authority, and a 3rd party relies on that representation.
What happens if a partner binds the firm without actual authority but the 3rd party is unaware of this?
The firm may still be bound under s.5 PA or the apparent authority rules
What is the firm’s liability when holding out a non-partner as a partner?
The firm may be bound by the non-partner’s actions under apparent authority if it allows that represention
How is CGT applied in partnerships?
Each partner is treated as owning a fractional share of any disposed asset and is taxed individually based on that share, typically according to the profit sharing ratio
