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Partnerships – New, Retiring, Expulsion, Dissolution Notes

LPC Law Notes > Business Law and Practice Notes

This is an extract of our Partnerships – New, Retiring, Expulsion, Dissolution document, which we sell as part of our Business Law and Practice Notes collection written by the top tier of Cambridge And Oxilp And College Of Law students.

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PARTNERSHIPS

9 17(1
)

9 17(2
)
17(3
)
14 36(1
)

New Partners
Partners are jointly and severally liable for the debts of the firm
A person who is admitted as a partner into an existing firm does not thereby become liable to the creditors of the firm for anything done before he came a partner
Novation agreement - You can agree to have existing debts transferred to a new partner upon them joining
Retirement
Partners are jointly and severally liable for the debts of the firm
A retiring partner does not cease to be liable when leaving the firm for things done while at the firm

A partner may be discharged of liability by other partners in agreement - the remaining partners indemnify the existing partner
Every partner who represents themselves as a partner in a firm is liable as a partner ('holding out')
where a person deals with a firm after a change in its constitution he is entitled to treat all apparent members of the old firm as still being members of the firm until he has notice of the change - need to give notice to the clients (could be a new letterhead, or actual contact)
36(2 An advertisement in the London Gazette shall be notice as to persons who have not had dealings
)
with the firm before the date of change - advertise in the London gazette for persons who have not dealt with the firm before
Dissolution of the Partnership (NB: always check the partnership agreement for changes)

32 Partnership will be dissolved if:
 Fixed term ends
 Single venture ends
 If unfixed term (partnership at will s.26(1)), by notice of one of the partners 19
If all the partners agree to terminate the partnership before its date, it will be valid dissolution (as it is considered a variation of the fixed term) but must be in writing 33
A partnership is dissolved on the death or bankruptcy of one of the partners and MAY, at the option of the other partners, be dissolved if one of the partners' shares is charged 34
Illegality e.g. without a practicing certificate 35
Court order (incapable of performing their part; conduct prejudicially affecting the carrying on of the business; persistently committing breach; making a profit is impossible; just and equitable that the partnership be dissolved)

39 The main consequences of dissolution are that the partnership ceases, the liabilities of the partnership must be paid and the assets are sold and distributed 44
Rules for distribution - (Creditors  Loans by partners (and interest)  capital  residue/shortfall distributed in the same proportions as profits would be)
Expulsion 25
No majority of partners can expel any partner unless a power to do so has been conferred by an express agreement between the partners
Expulsion is something that should be thought about when drafting the partnership agreement; think about:
 What majority should be needed to expel - how big is the partnership?
 A catch all provision
 Weighted voting as a mechanism to protect the client (e.g. give him 2 votes)
Tax implications on expulsion
 The partner will be divesting herself of her business and would be subject to capital gains tax on the profit made. However, she would be eligible for certain reliefs such as entrepreneur's relied (if fulfils conditions) as she is selling her share of the business, or roll-over relief if she invests her profits in qualifying assets
 Annual exemption from CGT is £11,700
 She would only be taxed on the gain (vs. her contribution to the partnership)
 Income tax will be assessed based on the profit the partnership made, up until she was expelled
 Personal allowance for income tax £11,850

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