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Partnership Law Notes

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Partnership Law

1.

Recognising the existence of a corporate partnership:

General partnership - creation: s.1 PA 1890

- two or more persons carrying on a business in common with a view to a profit
- There does not have to be an agreement
- s.45 "business" is every trade, occupation or profession
- Does not have a separate legal existence

s.2

1. JT/TIC where they share profits from use of property doesn't itself create a partnership

2. sharing of gross returns does not itself create a partnership

3. receipt of share of profits is prima facia evidence of partnership but not conclusive

Fundamental characteristics: Typical rights

- be involved in decision making
- share in profits
- examine accounts
- insist on openness/honesty
- veto introduction of new partner Responsibilitie - sharing losses s Duration: Express/Fixed - until time pre-determined by agreement Implied/at will - Forever, until dissolved by notice, death or bankruptcy Statutory formalities Names

- control over names - s.1193/1194CA06
- requirement of revealing names/business address of partners - s.1201
- formalities don't apply when using just the names of the partners
- names, address must be on stationary/notice at place of business - s.1202/1204. Can instead say info is available at place of business s. 1203
- non-compliance could mean a fine and unable to enforce contracts if other party shows prejudice s.s205/1206

Tax Joint ventures

- income/CGT/VAT
- law still the same even though companies not humans

2.
-

Advise on terms implied by PA/explain why P's should consider express variation of them terms can be express or implied. PA1890 imply terms in absence of express/implied agreement s.24

-

certain provision of PA1890 cannot be varied by consent of all partners either express or inferred from coutrse of dealing s.19 Terms not implied by PA1890 Commencemen - When s.1 satisfied not on date in agreement t
- desirable to specify date from which mutual rights/responsibilities taking effect Name
- should be stated and fixed any partner can insist by contract no change
- firm and business name must both be included in agreement if different Financial input - how much capital each putting in and future increase contributions if anticipated Share of
- PA1890 implies equal split, can be changed by contrary intention profit/loss

Salary Interest Profit

- Can be different to reflect time spent in business, different degree of skill/expertise
- at specified rate on P's contributions before profit to reward P contribution
- equal often appropriate if salaries/interest are determined
- will salaries/interest still be awarded if there is a loss?
Drawing from - usually a limit set with periodic review and a clause for consequences of exceeding profit
- crucial point for JV Share in assets - increase/decrease reflected in P's share equally
- if unequal contributions is interest on capital sufficient or does position need to be altered?
Place/nature of - describe premises/geographical area of operation, require unanimous consent to change business Ownership of
- all P's equally but look at agreements as evidence of what intended. One P may have legal assets title and hold beneficial for others
- accounts should reveal contributions but important to have agreement so conclusive
- on dissolution ownership and profit/loss will have tax implications Work input
- all P's entitled to take part in management but no obligation. No implication that P should dedicate full time and intention but wilful neglect can mean compensation for other P's.
- should state level of commitment from each P and that they must not pursue other business
- expressly state holiday/maternity/sick provisions Roles
-whatever is agreed by P's to reflect different functions and amount of work Decision
- unless contrary intention then simple majority one vote per P making
- change nature of business/intro of new P must be unanimous
- changing terms of PA also must be unanimous
- JV will require decision making mechanism Terms implied by s.24 PA1890: 1 2 3

Rights of P's Duties of P's Indemnification

4

Interest

5 Management 6 Remuneration 7 New partners 8 Disagreements 9 Partnership books s.25 expulsion of P

equal share of capital/profits contribute equally to losses firm must indemnify every P for payments/liabilities in ordinary course/ proper conduct of firm or done necessarily to preserve business/property of firm P making payment/advance for purpose of business beyond capital agreed entitled to 5% pa from date of payment Every partner may manage business No partner entitled None without unanimous consent Ordinary matters by majority. Nature of business require unanimous consent Kept as place of business, every P have access No majority can expel any P unless expressly provided for in partnership agreement

Dissolution: (strictly even if other P's continue together one partnership dissolved and new one formed) Method Notice

PA1890 provision Alternatives/further points
- if no provision in agreement then can be dissolved at - could have provision for minimum any time by one P giving notice to others s.32(c) notice period
- notice need not be in writing unless agreement by
- include provisions for if P leaves, deed s.26(2) other P's must agree to repurchase his
- can have immediate effect share and reform partnership
- will not be a partnership at will if limitation placed on ability to terminate by notice Exam tip - if one P simply walked off check for implied notice/board minutes/communication between P (this is due diligence as if one P leaves then it's dissolved) Expiry of
- dissolved at fixed date s.32(a)
- make sure include what happens if fixed term - if continues after term elapsed, then uses same terms want to continue after fixed period s.27 (carry on automatically ect) Expiry of
- no mention
- must include what happens when specific specific purpose fulfilled

purpose Continue less than 2 P's

- must have 2 P's s.1
- as long as 2 despite departure by retirement, expulsion or bankruptcy

Bankruptcy - automatically dissolved s.33(1)
/ death Change over share of property Illegality Expulsion Court order Payment for outgoing P share

Restraint on outgoing P future trade

Arbitration

- P's have right to dissolve s.33(2)

- gives security
- allows some P's to leave
- could include provision of delayed payment to P leaving so in effect he gives partnership a loan
- include provision to ensure partnership continues and P's share bought out
- with JV provision for winding up
- keep this provision as protects P's
- unlikely L would take such a charge

- partnership automatically dissolved s.34
- no majority can expel s.26

- cannot be excluded
- should include a provision of when/how to expel and also consider expelled P's share
- must be just and equitable s.35
- allows P to break agreement without being liable for breach of contract must fulfil s.35
- If agreement doesn't provide the must be negotiated. - provisions should say whether other
- during negotiations he is entitled to 5% interest on P's must buy share or just have option amount of his share or profits as court think is
- option to purchase preferable for attributable to his share BPR on IHT
- provision of how to value P's share and if P's cant agree
- date payment due (or instalments)
- indemnity for liabilities of firm
- No implied term so agreement should include a reasonable restraint to protect firms business connections and confidential info.
- clause must protect legitimate interest and must be limited by geography and duration
- if unreasonable then void as matter of public policy
- courts likely to uphold if purpose to protect purchaser of business rather than restrict activities of leaving P
- non dealing clause - prevents P entering contract with past/present customers/employees
- non solicitation clause - prevents P soliciting contracts from past/present customers/employees
- last two more likely to be found reasonable as long as limited to what is reasonable for protection of firm.
- clause will avoid expense, delay, publicity of trial
- usually over interpretation of agreement rather than disputes over running of business

The business/goodwill/assets following dissolution with no continuing P's: Disposal of business

-If P's cant agree what happens to outgoing P share then business will be disposed of and proceeds used to pay creditors and P's what entitled
- Can be sold as going concern or separate pieces at a time
- Every P has right to insist on disposal and payment if necessary by court application s.39 Goodwill
- If business sold in separate pieces then goodwill lost
- buyer of goodwill will want cov to restrict trade for protection of it (must be reasonable) Distribution of - order = creditors (shortfall P's personally liable), P's who lent money to firm, P's capital proceeds entitlement, surplus to P's as agreed s.44(b) Who winds up - every partner (except bankrupt) has authority s.38 firm after
- every P, T in bankruptcy of P, PR of dead P may apply to court for apt of person as dissolution?
receiver who is entitled to be paid from P assets but not P personal money

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