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Business Law Practice > Unit 2 > Flashcards

Unit 2 Flashcards

1
Q

What is the PA 1890 definition of when a partnership comes into effect?

A

Section 1 PA = “A partnership comes into existence when two or more persons are ‘carrying on a business in common with a view to profit’.

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2
Q

Can the parties decide when a partnership begins?

A

No. Partnership begins when s 1 PA is satisfied.

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3
Q

What are the PA 1890 requirements in work input?

A

None. This means a partnership agreement should set out their working outs.

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4
Q

Are there default provisions for holiday entitlement, sickness, maternity?

A

No. Must be expressly added to partnership agreement.

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5
Q

What are the three exceptions to the general rule that partnership decisions must be taken by majority?

A
  1. Changing the nature of the business
  2. Introducing a new partner
  3. Changing the terms of the partnership agreement

These can only be done by unanimous decision.

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6
Q

Under the partnership agreement, how are capital and profits and losses shared?

A

Partners share equally in the capital and profits of the partnership. Also in losses.

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7
Q

What is the default position of the PA in relation to expelling a fellow partner?

A

Must be a unanimous decision (e.g., it is impossible to expel a partner without an express agreement allowing the other partners to do so).

There is no right to expel a partner for any reason. E.g., even if they have committed a crime.

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8
Q

What is the default position for ending the partnership under the PA?

A

A partner can end the partnership merely by saying to the other partners they wish it to end.

The partnership dissolves at this point.

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9
Q

Under s 32 PA when is a partnership dissolved?

A
  • When a partner retires
  • An expiry of a fixed term partnership (s 32) or
  • Death or bankruptcy of a partnership (s 33) or;
  • If partners give notice of dissolution to a partner who has granted a charge over their share of their partnership of the partnership property, for a debts owed by them alone and not the partnership as a whole

S 32 and 33 can be disapplied by the partnership agreement.

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10
Q

When can a partnership dissolve automatically?

A

If something happens which makes it unlawful for the business of the firm to be carries on.

Cannot be disapplied by the partnership agreement.

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11
Q

S 35 PA = The partners can apply to the court under s 35 for an order that the partnership is dissolved if:

A
  • A partner becomes permanently incapable of performing their part of the partnership contract
  • A partners conduct is prejudicial to the business
  • a partner wilfully or persistently breaches the agreement.
  • The partnership can only be carried on at a loss;
  • The court thinks that, for other reasons, it is just and equitable to order that the partnership be dissolved.
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12
Q

What is the effect of dissolution under the PA?

A

S 39 – An outgoing partner can insist on the business being sold.

Dissolution means that unless agreed otherwise, the partnership must end, all assets must be sold and the outgoing partner must recieve their share.

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13
Q

What is the default position of the PA in relation to an outgoing partner’s share?

A
  • Entitled either to interest at 5% per annum on the value of their partnership share until they receive their share from the other partners, or such sums as the court may order representing the share profits made which is attributable to the use of their share.
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14
Q

How does goodwill benefit a partnership which is being sold?

A

Good will is valued at 2 years’ profit and will form part of the purchase price if the partnership is being sold as a going concern.

Does not factor into purchase price if it is sold individually to be used elsewhere.

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15
Q

Do all partners have authority to act in winding up the business affairs?

A

Yes, unless they are bankrupt.

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16
Q

Is there an implied retraint of trade clause in the PA?

A

No. But they can be in the agreement if put there.

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17
Q

When is a restraint of trade clause valid?

A

Only enforceable if it protects legitimate business interest and is no wider than is reasonable to protect that interest in terms of duration, geographical area and scope.

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18
Q

What is the common law duty owed by partners?

A

Partners owe a duty of the utmost fairness and good faith towards one another.

This include:

  • Must be open with information regarding the partnership.
  • Must account to the firm for private profits without the other partners consents from any transaction relating to the partership and
  • must not compete with the firm
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19
Q

What is apparent authority?

A

Where the firm is liable for actions which were not actually authorised but which may have appeared to an outsider to be authorised.

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20
Q

What are the requirements of apparent authority under s 5 PA?

A
  1. The transaction is one which relates to business of the kind carried on by the firm (objective);
  2. The transaction is one for which a partner in such a firm would usually be expected to have the authority to act (i.e. general firm) (objective);
  3. The other party to the transaction did not know that the partner did not have authority to act (subjective) ; and
  4. The other party deals with a person whom they know or believe to be a partner (subjective).

NOTE – Points 1 and 2 are an objective test of what would appear to an outsider to be the nature of the firm’s business and what authority you would expect a partner in such a firm to have. Points 3 and 4 concern the knowledge or belief of the third party who has dealt with the partner. Whether 3 and 4 are satisfied is a subjective test.

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21
Q

Is the firm liable under apparent authority?

A

Yes.

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22
Q

Can partners recieve indemnity for apparent authority from the wrongful acting partner?

A

Yes.

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23
Q

What are partners’ liability for partnership debts?

A

Unlimited liability. Jointly and severally liable. A claimant can sue any or all of the partners. Partner who is sued can seek a contribution from the other partners who were not.

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24
Q

What is a novation agreement?

A

An agreement which releases a retiring partner by entering into a contract with the creditor and the other partners (and possibly an incoming partner). Under this contract, the creditor will release the original partners from their liability under the contract and instead the firm as newly constituted will take over the liability.

25
Q

What is the liability of a partner once they’ve left the partnership?

A

They remain liable for debts incurred while they were a partner (unless there is a novation agreement).

They will not be liable for any debts entered into after they have left the partnership as long as they comply with s 36 PA. (notice requirements)

26
Q

What are the notice requirements of an outgoing partner (s 36 PA)?

A
  • Anyone who has dealt with the firm. must be given direct actual notice of the partner leaving.
  • A notice must be placed in the Gazette which acts as notice to the whole world of the partner’s departure.
27
Q

How can ‘holding out’ happen?

A
  • Orally
  • In writing (e.g., partner’s name on firm’s notepaper / website)
  • Conduct

Holding out only occurs where the partner is held out to still be a partner either by themselves or with their knowledge, another partner.

28
Q

If a former partner had no knowledge that they were being held out, can they be liable?

A

No, if they have also complied with s 36 PA.

29
Q

Can terms of a partnership agreement be implied by conduct?

A

Yes.

30
Q

Can agreed working hours suggest an implied split on the CAPITAL within a partnership?

A

No. But they can suggest an implied split on INCOME/SALARY.

31
Q

What is goodwill of a partnership valued at when the partnership is being sold as a going concern?

A

2 years’ profit. This will form part of the purchase price.

If the partnership’s assets are sold individually to be used elsewhere, goodwill is not part of the equation.

32
Q

When a partnership is sold as a going concern, do the partners have authoirty to act in the winding up of the business’s affairs?

A

Yes, unless they’re bankrupt. The trustee in bankruptcy can also make an application.

33
Q

Is there an implied restraint of trade clause in the PA?

A

No.

34
Q

When is a restraint of trade clause valid?

A

1) Protects a legitimate business interest

2) No wider than is reasonable to protect that interest in terms of duration, georgraphical area and scope.

35
Q

What is the common law duty that partners are subject to?

A

A duty of the utmost fairness and good faith towards one another.

36
Q

What are the 3 duties which fall under this common law duty?

A

1) Must be completely open with one another regarding information on the partnership

2) Must account to the firm for any private profits they have earned without the other partners’ consent

3)Must not compete with the firm

37
Q

Does the PA include a clause requiring partners to indemnify their fellow partners?

A

Section 24 PA – A partner must indemnify fellow partners who have borne more than their share of any liability or expense connected with the partnership

38
Q

What are the various types of authority a partner can act under?

A

1) Express actual authority

2) Implied actual authority

3) Apparent authority

39
Q

How is implied actual authority granted in a partnership?

A

– Regular course of dealings

– If there are no express provisions in the PA, and all partners are involved in running the business without any limitations, then they will have implied authority to do the things required to run the business (e.g., sell firm’s products in the ordinary course of business).

40
Q

What is apparent authority of a partner?

A

The firm may be liable for actions which were not actually authorised, but which may have appeared to an outsider to be authorised.

This liability is due to the fact that each partner is an agent of the firm and of their fellow partners for the purposes of the partnership business.

41
Q

When does a partner have apparent authoirty?

A

S 5 PA:

  1. The transaction is one which relates to business of the kind carried on by the firm (objective);
  2. The transaction is one for which a partner in such a firm would usually be expected to have the authority to act (i.e. general firm) (objective);
  3. The other party to the transaction did not know that the partner did not have authority to act (subjective) ; and;
  4. The other party deals with a person whom they know or believe to be a partner (subjective).

ALL have to be satisfied for there to be apparent authoirty.

42
Q

Does apparent authority apply where the partner involved had express limitations on their authority?

A

Yes.

43
Q

Note on S 5 PA test for apparent authoirty –

A

NOTE – Points 1 and 2 are an objective test of what would appear to an outsider to be the nature of the firm’s business and what authority you would expect a partner in such a firm to have. Points 3 and 4 concern the knowledge or belief of the third party who has dealt with the partner. Whether 3 and 4 are satisfied is a subjective test.

44
Q

What is the effect of a partner having apparent authority?

A

– Firm will be liable to the third party under the contract.

– Partner who made the firm liable will be liable to indemnify their fellow partners for any liability or loss which they incur.

45
Q

Are partners jointly liable with the other partners for debts incurred by the partnership while they were a partner?

A

Yes.

46
Q

What is the effect of the civil liability (contribution) Act 1978?

A

Partners are jointly and severally liable for the partnership’s debts:

a) A claimant can sue any or all of the partners, and collect the total damages awarded by a court from any of all of them, leaving the defendant(s) to seek a contribution from any of the other partners/

47
Q

What is a novation agreement?

A

An agreement which releases a retiring partner by entering into a contract with the creditor and the other partners (and possibly an incoming partner). Under this contract, the creditor will release the original partners from their liability under the contract and instead the firm as newly constituted will take over the liability.

48
Q

What must be given / executed for the novation agreement to be binding where a partner retires but no new partner joins?

A

Either

1) Consideration for creditors’ promise to release the retiring partner from liability or

2) Executed by deed.

49
Q

Note on novation agreements –

A

NOTE – Don’t confuse a novation with an indemnity in relation to existing debts. An indemnity is only an agreement between the retiring partner and the other partners, not including the creditors. Any creditors are not bound by indemnities and can still sue the retired partner. It would then be for the retired partner to claim from the other partners to meet the liability.

50
Q

What are the S 36 notice requirements of an outgoing partner?

A

1) Anyone with whom the firm has dealt with must be given actual notice of the partner leaving (e.g., informed directly)

2) Anyone who has not had dealings with the firm must be notified by an advert in a gazette

51
Q

What is the effect of S 36 on an outgoing partner?

A

If a debt was incurred whilst the partner was still a partner, they remain liable. If the debt was incurred after and they have complied with S 36 PA 1890, they escape liability.

52
Q

What is ‘holding out’?

A

Where the partnership has ‘held out’ that a person is a member of the firm when they are not.

Where a creditor relies on this representation, they may hold that person liable for the firm’s debts (even if the person had been retired before the contract was made).

53
Q

Can holding out be oral? In writing? or conduct?

A

All 3.

54
Q

Who can make the representation of being held out?

A

1) Person themselves or;

2) Another person provided the person who is ‘held out’ has knowledge of being held out.

55
Q

What is the effect of a person being ‘held out’?

A

Any creditor who establishes that someone held themselves out or allowed themselves to be held out as a current partner, that they relied on the holding out and that they gave credit to the firm as a consequence will be able to sue that person for the debt owed by the firm.

56
Q

Where a former partner did not have knowledge that they were being represented as being a partner can they still be liable for any debt incurred after they leave?

A

No.

57
Q

Enforcing the firm’s liability – Who may a claimant sue in a partnership?

A

1) Partner with whom they made the contract (privity of contract)

2) Anyone who was a partner when the debt was incurred. (That partner can then claim an indemnity from the other partners.

3) The firm itself, in the firms name. Anyone who was a partner at the time the debt was incurred is jointly liable to satisfy the judgement.

58
Q

Can the court order a contirbution by the other partners if just one partner is sued?

A

Yes.

59
Q

When a partner cannot pay their fellow partners, what enforcement options do they have?

A

– Can enforce the debt in the usual way
– E.g., charge over property / sieze assets

Business Law Practice (10 decks)

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