This document contains full notes for all 16 units of the Business Law and Practice module - all notes needed in order to successfully complete the exams.
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SPOT ISSUE, STATE APPLICABLE LAW AND CONCLUDE BY ADVISING CLIENT
Partnership
Chapter 13 and 14.
Exam Question Structure:
1. Is there a partnership? S1 PA 1890. When two or more persons carry on business with a view
to making a profit. Khan v Miah. Carrying on a business in common (s.45 – includes every
trade, occupation or profession). – Link to Q, yes or no partnership because…
- If party receives share of profits the company strong indicator of partnership BECAUSE
Receipt by a person of a share of the profits of a business is prima facie evidence of a
partnership (s2(3)).
- Sharing ownership / control of their assets > makes it hard to avoid conclusion that they
are carrying on a business in common.
- Genuinely making decisions together – s24. But, if one party accepts the decisions of
other no indication of Partnership.
- Examining accounts of business – only partner has right to do this so indication of
partnership.
2. Who are the partners? Are they still partners? – Link to Q.
3. What type of partnership is it?
- Fixed/express – s32(a) until a time predetermined by agreement
- Implied/at will – forever until dissolved by notice (s32(c) and s26(1)) or death or
bankruptcy s33.
4. What are the relevant terms?
- Express by oral/written agreement – s19 PA.
- Inferred by conduct?
- Implied by PA 1890, LPA 1907, LLPA 2000.
5. Apply to facts.
6. Conclude.
Advise on key provisions of the Partnership Act 1890, especially in connection with the existence and
duration of a partnership, profit-sharing, decision-making, retirement, expulsion and dissolution
Profit sharing = a suitable ratio in which the profits remaining after salaries and interest on
capital are to be shared should be stated. Equal shares or if unequal shares should state this
for both profits and losses. S24(1).
Joint and severely liable for debts – s24(1).
Decision-making = Unless agreement to the contrary all partnership decisions will be made
on a simple majority (each partner has one vote) – s24(8). Decisions on changing nature of
business or introduction of a new partner require unanimous votes – s24(8)/(7). Any
decisions made by one partner on their own? Eg purchases of stock.
Dissolution
by notice: s32(c)- if no provision in agreement, partnership can be dissolved at any time by
any partner giving notice. This creates insecurity and instability and therefore PA should be
formed to restrict this right. Solution – minimum notice period (eg 6 months), fixed term
agreement of number of years, provision continues so long as 2 partners no matter who
leaves. If one partner leaves PNS without giving notice, was there an implied notice? Check
board minutes for anything said? Check communications between partners.
S33-35 PA deals with dissolution.
s 32(a): dissolves on the expiry of a fixed term, unless their agreement provides for
continuance after the fixed term has expired.
, s 27(a): Where the partnership continues to operate after fixed term elapses, it continues on
old terms.
Death or bankruptcy – usually bring to an end (s33 PA) unless bought out by remaining
partners so partnership continues. Term of Partnership agreement.
Illegality: s34 where it is illegal to carry on business, cannot exclude this by agreement.
Retirement – s26. Anything in contract preventing retirement for certain duration?
Agreement with outgoing partner for purchase of their share, if not then partnership
dissolved.
Court order: s35
s 35: Court has power to order dissolution on various grounds which include:
s35(b) – Incapability
s35(c) – Conduct
s35(d) – Significant enough breach of agreement
s35(e) – Partnership can only carry on at a loss.
s35(f) – Just and equitable
→ A court order breaks agreement w/o any partner being liable for breach of contract.
Expulsion: happens at the instigation of the other partners, eg if breached agreement or
caused misconduct, but need partners consent unless stated otherwise in contract. Payment
for outgoing partners share.
Payment for outgoing partners share: PA should state appropriate terms. If nothing in
agreement, then s42 PA relevant. Date when payment due should be agreed, if delays in
payment then former partner or their estate entitled to 5% interest on the amount of their
share or such share of the profits as is attributable to the use of the outgoing partner’s
share.
Indemnity? Where debts of firm taken into account when valuing outgoing partners shares?
If yes then fully liable to debts entered into when part of business, if no then can claim
against other partner on indemnity basis – unless something in partnership agreement that
states otherwise.
Binding obligation on other partners to purchase outgoing partners shares or merely an
option to purchase?
Professional valuation of shares if partners cannot agree.
Identify and explain key provisions typically included in a written partnership agreement, including
those necessary to exclude or vary the terms otherwise implied by the Partnership Act 1890.
Section 19 of the Partnership Act encourages them to negotiate and agree terms. It also
alludes to the fact that the Act will determine the rights and duties of partners if they don’t
settle terms between themselves.
Non- competition clause = term preventing outgoing partner from setting up rival business.
Provision to protect confidential information of business and clients. ‘Non-dealing clause’ –
prevent former partner from entering into contracts with customers or former employees of
partnership. ‘Non-solicitation clause’ – prevents from solicitating contracts from customers
or employees.
Details of capital contribution of each partner and their percentage of ownership. Also,
percentage of profits and losses. Also drawings- how much they can withdraw, when eg
periodic review.
Partnership name.
Duration of partnership.
Profits and losses – joint and several liability, how these are to be shared.
, Specify in agreement which assets are partnership assets to prevent disputes as to PA and
their own.
Work input – s24(5) right but not obligation. PA fixes each other’s obligations.
Decision making – s24(8).
Partners’ authority and decision- making powers.
Dispute resolution, what should resolution process be if ever came to this.
Terms implied by the PA 1890: s24 –
(1) rights and duties of partners. (2) indemnification, (5) any partner may manage the
business, (7) no new partners introduced without unanimous consent.
Section 25: expulsion – no majority of Ps can expel any other unless expressly provided
for in agreement.
Retirement: will normally automatically dissolve partnership. Clause altering/excluding this
promotes certainty and stability by ensuring that the partnership will continue in the event
one partner retires.
Recognise the professional conduct implications of advising more than one partner on the terms of a
draft partnership agreement.
Principle 7: must act in best interests of each client.
Paragraph 6.2 of the SRA Code of Conduct: a solicitor must not act if there is a client conflict
or a significant risk of a client conflict, unless:
i) The clients have a substantially common interest or are competing for the same
objective; and
ii) All clients give informed consent (which must be given or evidenced in writing); and
iii) Effective safeguards (where appropriate) have been put in place to protect all
clients’ confidential information; and
iv) It is reasonable for you to act for all the clients
Paragraph 6.3 – duty of confidentiality.
Does there need to be any negotiations between the agreements? If yes then would not be
able to act in best interests of both, if no and this is simple agreement then may be able to
act for both with substantially common interest.
Consider the circumstances in which former partners remain liable for partnership debts and how
they can minimise the risk of being held liable.
Power of partner to bind the firm – actual or apparent authority. If go beyond this,
personally liable to 3rd party.
The firm can be sued – claim should be commenced against the partnership if appropriate to
do so: PD 7, CPR part 7.
All those who were partners at the time when the debt or obligation was incurred are jointly
and severely liable to satisfy the judgment – ss9 and 17 PA and s3 Civil Liability
(Contributions) Act 1978.
Section 9: ‘Every partner in a firm is liable jointly with the other partners.. for all debts and
obligations of the firm incurred while he is a partner; and after his death his estate is also
severally liable in a due course of administration for such debts and obligations, so far as
they remain unsatisfied..’
Questions to ask:
1. What has the partner done? (entered into contract/loan etc). Would such a contract have
been entered into in the course of business of the partnership? – if no, then does not bind
firm under s5 and partner is individually liable under privity of contract.
2. Was there authority to bind? – express actual authority? Implied actual authority? Apparent
authority?
, - Express actual authority (s6 PA): Ps have given this P authority to act on behalf of
firm/represent firm in this transaction.
- Implied actual authority (s6 PA): Ps impliedly accepted that this P has authority to act for
firm eg regular dealing, prior conduct.
- Apparent authority (s5 PA): firm not authorised but 3 rd party believed P to have
authorisation. 3rd P knew or believed them to be partner at time.
If any of these satisfied, then firm bound.
If no authority, will not bind firm, partner will be personally liable.
3. Has liability been avoided?
4. Who is potentially liable?
Liability for debts:
Incoming partners – NO. s17(1) PA 1890: A new partner is not liable “to the creditors of the
firm for anything done before he became partner”.
Outgoing partners – Yes may be. A partner who retires from the firm does not cease to be
liable for partnership debts incurred before his retirement (s17(2) PA 1890).
Partner who left the firm before debt incurred: s9 generally no liable, but such a person may
be sued or made liable for judgment against the firm as a result of
✓ s14: ‘Holding out’ – Creditor of partnership has relied on the representation (‘holding
out’) that a particular person was a partner of that firm. Nationwide Building Society v Lewis.
Representation that they were partner of firm at time by that partner or someone else. Oral,
written or by conduct. And reliance upon representation. – Link to Q.
✓ s36: Failure to give appropriate notice of retirement – creditor enters into transaction
knowing X was partner, creditor unaware X no longer partner. X failed to give proper notice
– link to Q. s36. Actual notice – sending out standard letters announcing partner is leaving to
those who dealt with firm (s36(1)). Advertisement in London Gazette (s36(2)). There is no
requirement for the estate/trustee of a partner who is dead/bankrupt to give notice
(s36(3)).
✓ A novation agreement – s17(3). Under the contract of novation it may be agreed that the
creditor will release the original partners from their liability with the contract and the new
partner will take over. Advantageous to leaving partner whilst disadvantageous to incoming
partner.
Avoid Liability:
By doing those above – not holding out, give creditors notice, novation agreement
Indemnity clause: Outgoing P can enter indemnity clause with the Ps to indemnify him
against all future liability on the contracts made when he was P.
Partnership Questions:
1. A partner retired but sometimes comes back in the office to help out wants no liability for
debts happening after their retirement – did they provide notice of their leaving to those
they did business with? Are they still holding out to creditors as a partner? Rowlands v
Hodson could apply here (p258).
2. 2 people in business but do not have a formal agreement/contract and don’t want to be
seen as partners – are they carrying on in a business in common with a view to making a
profit? Do not need to have a written contract to be a partnership, just for the
characteristics to be satisfied. If they both are involved in decision making, share profits,
examine the accounts of business, these are just a few characteristics of being in a
partnership. If they satisfy s1 PA then will be held as in partnership.
Separate Legal Personality
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