Partnership Property (Section 20)

Partnership Property (Section 20)

• Partnership property includes all assets (e.g., land, goods, capital contributions) brought into or acquired by the partnership.

• This property must be used solely for partnership purposes and in line with the partnership agreement.

• Example: If partners contribute capital to start a business or bring in existing assets, those items become partnership property.

• Purchased assets using partnership funds are considered partnership property.

Trust Property and Partnership Property (Section 20)

• If property is held in trust (e.g. for beneficiaries), it is not partnership property, even if it's used for the partnership.
• Example: Land owned by a partner in trust for their children, used for growing agricultural produce for a partnership, doesn't become partnership property.
• Co-owned land used for partnership profits, but repurchased with these profits, remains co-owned according to the original shares. The new land is not automatically partnership property.

Property Purchased with Partnership Funds (Section 21)

• Property bought with partnership funds is presumed to be for the partnership, unless otherwise specified.
• Example: A warehouse bought with partnership profits becomes partnership property.
• Example (contrary intention): If a partner buys additional land to expand a trust property used for partnership purposes, that land is not a partnership asset.

Indicative of a Partnership

• Purchasing property for the partnership business may indicate a partnership.
• If the property is owned by the firm itself, insurance coverage is handled by the firm and not by individual partners.

Assignment by Partner

• A partner's share of partnership property is an incorporeal right, but they can't assign it without other partners' consent.

Dissolution of Partnership

Dissolution (Not by Court)

• Rescission of Agreement: A partnership can be dissolved if one partner is induced by fraud or misrepresentation. The rescinding partner has rights to retain payments made to the partnership, to be indemnified for debts, and possibly damages.

• Dissolution by Notice: Partnerships without a fixed term are "partnerships at will." One partner can dissolve the partnership with notice. Notice can be implied. Dissolution is effective from the date of the notice.

Dissolution by Expiration of Term

• Partnerships with a set duration dissolve upon its end.
• Continued activity after the term's end creates a "partnership at will".

Dissolution by Death or Bankruptcy

• Death or bankruptcy of a partner dissolves the partnership, unless otherwise agreed.
• A partner's assets can be charged for personal debt, potentially dissolving the partnership at the other partner's discretion.

Dissolution by Illegality

• If an event makes the partnership business illegal, the partnership dissolves.

Dissolution by the Court

• A court can dissolve a partnership if one partner is of unsound mind, permanently incapacitated, acts prejudicially to the business, violates the partnership agreement, or operates at a loss, or if it's just & equitable to dissolve the partnership.
• Courts can dissolve a partnership for severe breaches of contracts by a partner.

Further Acts Following Dissolution

• After dissolution, the partnership's legal personality ceases to exist.
• Partners can't bind other partners, but permitted to fulfill unfinished deals.
• Partners can wind up partnership affairs.
• Partners can use partnership property to pay partnership debts and liabilities.
• Distribution of assets after dissolution prioritizes paying debts, then profits, then capital, with losses calculated according to profit shares.

Changes of Partners

• Without a partnership agreement, continuous succession is not automatic. A change in partners dissolves the existing partnership requiring a new agreement. Impacts creditors but new partners not liable for pre-existing debts.

Rights of Third Parties Dealing with the Firm

• Partnerships should have a governing agreement for partner departures.
• Partnership agreements do not automatically bind third parties.
• Third parties must be notified of partner departures to avoid perceived partnership authority.

Insolvency of Partnership

• English law treats a partnership as subject to separate insolvency rules.
• Scottish law treats the partnership as legally separate from its individual partners regarding insolvency.

This quiz covers important aspects of partnership property as outlined in Section 20. Learn the distinctions between partnership property and trust property, including what constitutes partnership assets and examples that clarify these concepts. Test your knowledge on the rules governing assets brought into or acquired by a partnership.