Partnerships and the Partnership Act 1890
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Questions and Answers

What is a primary characteristic of a Limited Liability Partnership (LLP)?

  • All partners share equal responsibilities and losses.
  • Partners are personally liable for the debts of the business.
  • Partners have unlimited liability.
  • Partners have limited liability and increased disclosure requirements. (correct)

Which of the following statements accurately describes the Partnership Act 1890?

  • It is a codifying statute that restates existing laws. (correct)
  • It was established to eliminate all forms of partnerships.
  • It provides rules that can only be modified by a written agreement.
  • It solely focuses on the relations between partners and third parties.

Which factor is least likely to be considered when determining the existence of a partnership?

  • The joint ownership of property.
  • The intention of the partners to form a partnership.
  • The number of partners in the business. (correct)
  • The sharing of gross returns.

In a Limited Partnership (LP), what is the distinction between a general partner and a limited partner?

<p>General partners have unlimited liability; limited partners' liability is limited to their investment. (B)</p> Signup and view all the answers

What does the term 'indicia' refer to in the context of partnership formation?

<p>Indicators or signs used to determine the existence of a partnership. (C)</p> Signup and view all the answers

Which of the following is NOT a type of partnership recognized in the provided information?

<p>Limited dividend Partnership (A)</p> Signup and view all the answers

What key feature distinguishes a partnership formed under the Limited Partnerships Act 1907?

<p>At least one partner's liability is limited to their investment. (D)</p> Signup and view all the answers

What is required for land purchased with partnership funds to not be deemed as partnership property?

<p>Establishment of a trust intended for a specific beneficiary (D)</p> Signup and view all the answers

Which method of dissolution arises from the partner’s death or bankruptcy?

<p>Default rule (B)</p> Signup and view all the answers

What can a partner do immediately after a partnership is dissolved?

<p>Complete unfinished transactions (A)</p> Signup and view all the answers

What happens to the financial liability of a partner who passes away without prior notice given?

<p>The estate is not liable for debts incurred after the partner's departure (C)</p> Signup and view all the answers

In limited partnerships, who has unlimited liability?

<p>General partners only (A)</p> Signup and view all the answers

Which court action can lead to dissolution of a partnership for a partner exhibiting detrimental behavior?

<p>Court order based on incompetency (A)</p> Signup and view all the answers

How are assets distributed upon the final settlement of a partnership?

<p>Losses are absorbed by the partners first, then profits are distributed (C)</p> Signup and view all the answers

What is a significant factor that differentiates partnership insolvency in England from Scotland?

<p>Partnership insolvency is considered a personal bankruptcy in Scotland (A)</p> Signup and view all the answers

What is the implication of a partnership operating beyond its fixed term?

<p>It may be treated as a partnership at will (B)</p> Signup and view all the answers

What condition must be fulfilled for a partnership to be established based on profit-sharing?

<p>The individual must be liable for losses. (B), The individual must have contributed capital. (D)</p> Signup and view all the answers

Under what circumstances can receipt of profits rebut the assumption of a partnership?

<p>Remuneration for services rendered. (C)</p> Signup and view all the answers

Which of the following is NOT a key right that partners have?

<p>Right to unilateral decision-making without consent. (C)</p> Signup and view all the answers

What form of authority can a partner exercise when it is implied from their role?

<p>Actual Implied Authority. (B)</p> Signup and view all the answers

What is a key difference in liability between partners in Scotland compared to England?

<p>Partners in England face joint and several liability. (D)</p> Signup and view all the answers

What does Section 20 of the 1890 Act state about partnership property?

<p>It must be held exclusively for partnership purposes as per the agreement. (A)</p> Signup and view all the answers

What happens to a retiring partner's liability according to Section 17?

<p>They remain liable unless discharged by agreement. (D)</p> Signup and view all the answers

What is the implication of a partner being held out as a partner under Section 14?

<p>They can be held liable for debts incurred by the firm. (A)</p> Signup and view all the answers

In the case of Fortune v Young (1918), why were the partner's actions not binding on the firm?

<p>The partner lacked authority, and the third party was aware. (D)</p> Signup and view all the answers

A Limited Liability Partnership (LLP) offers unlimited liability to its partners.

<p>False (B)</p> Signup and view all the answers

The Partnership Act 1890 provides specific rules that cannot be modified by partnership agreements.

<p>False (B)</p> Signup and view all the answers

In a Limited Partnership (LP), a general partner has restricted liability compared to a limited partner.

<p>False (B)</p> Signup and view all the answers

The case of Pooley v Driver (1877) highlights the informal nature of partnership agreements.

<p>True (A)</p> Signup and view all the answers

Joint tenancy typically indicates the establishment of a partnership according to the rules stated in Section 2 of the Partnership Act 1890.

<p>False (B)</p> Signup and view all the answers

A written partnership agreement is mandatory for all types of partnerships to exist.

<p>False (B)</p> Signup and view all the answers

The Limited Partnerships Act 1907 allows for the formation of partnerships involving solely partners with unlimited liability.

<p>False (B)</p> Signup and view all the answers

Sharing gross earnings alone can establish a partnership.

<p>False (B)</p> Signup and view all the answers

According to Section 24 of the 1890 Act, partners have equal rights in managing the business.

<p>True (A)</p> Signup and view all the answers

A partner's fiduciary duties cease immediately when the partnership is dissolved.

<p>False (B)</p> Signup and view all the answers

Joint and several liability means that all partners are liable for any debts incurred by any one partner.

<p>True (A)</p> Signup and view all the answers

Apparent authority means a partner can act beyond the scope of the usual business without consequences.

<p>False (B)</p> Signup and view all the answers

New partners are always liable for debts incurred before they joined the partnership.

<p>False (B)</p> Signup and view all the answers

The firm is liable for wrongful acts committed by a partner, provided the partner was acting in the ordinary course of business.

<p>True (A)</p> Signup and view all the answers

Section 20 defines partnership property as any property bought by any partner irrespective of its purpose.

<p>False (B)</p> Signup and view all the answers

Partners can limit another partner's ability to bind the firm without notifying third parties.

<p>False (B)</p> Signup and view all the answers

If partners use land they jointly own for the partnership, that land becomes partnership property.

<p>False (B)</p> Signup and view all the answers

In the UK, a partner's estate is liable for debts incurred by the partnership after their death.

<p>False (B)</p> Signup and view all the answers

Limited partners in a Limited Partnership (LP) have the ability to participate in management and bind the firm.

<p>False (B)</p> Signup and view all the answers

A partnership automatically continues as a general partnership when its fixed term expires and no notice is given.

<p>True (A)</p> Signup and view all the answers

In England, partnerships are treated as separate legal entities under insolvency law.

<p>False (B)</p> Signup and view all the answers

Partners' shares in partnership property can be assigned without any consent from the other partners.

<p>False (B)</p> Signup and view all the answers

The principle of incorporeal moveable right refers to the right partners have over their shares in partnership property.

<p>True (A)</p> Signup and view all the answers

In the event of a partnership's dissolution, partners lose the right to bind each other in new contracts but can still finalize unfinished transactions.

<p>True (A)</p> Signup and view all the answers

A court can order the dissolution of a partnership if it deems it just and equitable, even without specific legal grounds.

<p>True (A)</p> Signup and view all the answers

What is a characteristic of a Limited Partnership (LP)?

<p>At least one partner has limited liability (D)</p> Signup and view all the answers

What type of partnerships have increased disclosure requirements for partners?

<p>Limited Liability Partnership (LLP)</p> Signup and view all the answers

A partnership is formed through a __________ relationship between partners.

<p>contractual</p> Signup and view all the answers

Match the following terms with their correct definitions:

<p>General Partner = Has unlimited liability in a Limited Partnership Limited Partner = Liability limited to the amount invested in the partnership LLP = Partners have limited liability but must follow disclosure rules Partnership Act 1890 = Governs partnerships and outlines default rules</p> Signup and view all the answers

What is the presumption regarding property bought with partnership funds?

<p>It is considered partnership property (D)</p> Signup and view all the answers

Partners can assign their share in partnership property without obtaining the consent of others.

<p>False (B)</p> Signup and view all the answers

What is the term used for the process of ending a partnership?

<p>dissolution</p> Signup and view all the answers

A _____ can be used to bring about the dissolution of a partnership in cases of fraud or misrepresentation.

<p>rescission</p> Signup and view all the answers

Match the types of partners with their roles:

<p>General Partner = Unlimited liability and management duties Limited Partner = Limited liability and no management role Retiring Partner = No longer involved in daily operations Deceased Partner = Estate not liable for future debts incurred by partnership</p> Signup and view all the answers

Under what circumstance can a partnership be dissolved due to external factors?

<p>If the business becomes illegal, such as during a war (C)</p> Signup and view all the answers

In Scotland, partnership insolvency is treated the same as personal bankruptcy.

<p>True (A)</p> Signup and view all the answers

What is the primary evidence of a partnership?

<p>Receipt of a share of profits (B)</p> Signup and view all the answers

Partners in a partnership have a fiduciary duty that ceases immediately upon dissolution.

<p>False (B)</p> Signup and view all the answers

What are the key rights partners have in a partnership?

<p>Equal share in profits, indemnity for expenses, interest on loans (excluding capital contributions), participation in management, access to the firm's accounts.</p> Signup and view all the answers

In Scotland, partners have __________ liability, meaning each partner can be held liable for the entire debt of the partnership.

<p>joint and several</p> Signup and view all the answers

Match the following duties of partners with their descriptions:

<p>Duty to render accounts = Partners must provide financial accounts and information to each other. Duty not to compete = Partners are prohibited from competing with the firm's business while in partnership. Accountability for private profits = Partners must account for any profits made individually that should have gone to the firm. Fiduciary duty = Partners must act in the utmost good faith towards each other.</p> Signup and view all the answers

According to Section 20, which of the following would NOT be considered partnership property?

<p>Assets bought for personal use with partnership funds (A)</p> Signup and view all the answers

__________ authority is implied from the position of a partner and allows them to act on behalf of the firm.

<p>Actual Implied</p> Signup and view all the answers

A new partner is liable for debts incurred before joining the partnership.

<p>False (B)</p> Signup and view all the answers

Flashcards

Partnership

An agreement between individuals to pursue a shared business goal for mutual benefit.

Partnership Act 1890

A law governing standard partnerships (firms).

Limited Partnership (LP)

A partnership where some partners have limited financial liability.

Limited Liability Partnership (LLP)

Partners have limited liability; detailed records are needed.

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Formation of a Partnership

A partnership is established through an agreement, often but not always, formalized.

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Joint ownership doesn't always equal partnership

Co-ownership of assets does not automatically imply a business partnership, as seen in legal cases like Sharpe v Carswell.

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Sharing returns doesn't always mean partnership

Even if profits are divided, it doesn't automatically constitute a formal partnership.

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Clark v Jamieson (1909)

This case determined that sharing gross earnings alone isn't enough to establish a partnership, as Clark did not contribute capital or share in losses.

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Prima facie evidence of partnership?

A share of profits is generally considered prima facie evidence of a partnership, meaning it establishes a strong presumption of partnership. However, this can be rebutted in specific situations.

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Section 24 of the 1890 Act

This section outlines the default rights and obligations of partners in a partnership, which apply unless specifically modified by the partnership agreement.

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Key rights of partners

Partners have rights such as equal share in profits, indemnity for expenses, interest on loans, participation in management, access to accounts.

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Fiduciary duties of partners

Partners owe fiduciary duties of trust and loyalty to each other, requiring utmost good faith in dealings, even after dissolution until final accounts are settled.

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Duty to render accounts

Partners have a duty to provide information and render accounts, as outlined in Section 28 of the 1890 Act.

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Apparent authority of partners

Apparent authority arises when a third party reasonably believes a partner has authority based on appearances, even if the partner lacks explicit authority.

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Section 5 of the 1890 Act

This section states that every partner is an agent of the firm and other partners, and their actions usually bind the firm and other partners.

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Liability for wrongs

The partnership is liable for wrongful acts of a partner acting in the ordinary course of business, whether by contract, tort, or other means.

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Partnership Property

Assets owned by the partnership, with the presumption that property bought with partnership funds belongs to the partnership unless proven otherwise.

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Contrary Intention

Proof that a partnership asset, despite being bought with partnership funds, is intended to be held differently, such as in a trust.

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Partnership Dissolution

The process of ending a partnership.

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Dissolution by Notice

Ending a partnership at will (no fixed term) by giving notice to other partners.

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Dissolution by Expiry of Term

Ending a fixed-term partnership when the agreed time period expires.

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Dissolution by Death or Bankruptcy

A partnership can dissolve upon the death or bankruptcy of a partner, unless agreed otherwise.

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Dissolution by Court Order

A court can dissolve a partnership in specific circumstances, such as a partner's unsound mind or significant breaches of the agreement.

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Insolvency in England vs. Scotland

Partnership insolvency is treated differently in England (as an individual) than in Scotland (under personal bankruptcy laws).

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What does the Partnership Act 1890 govern?

The Partnership Act 1890 governs standard partnerships (firms), setting out basic rules that partners can change in their agreement.

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What are the major types of partnerships?

There are three main types: ordinary partnerships (firms), limited partnerships (LPs), and limited liability partnerships (LLPs). Each has different structures and liability levels.

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What is the significance of Pooley v Driver?

The case of Pooley v Driver (1877) established that a partnership is a contractual relationship, meaning it's created through an agreement.

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What is the 'objective test' for partnership?

The objective test is used to determine if a partnership exists, especially when there's no written agreement. It looks at the factors outlined in the Partnership Act and the partners' behavior.

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Why do you need more than just sharing profits to be a partner?

Just sharing profits doesn't automatically mean you're a partner. Courts use the objective test and consider various factors to determine if a true partnership exists.

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What is meant by 'codifying statute'?

A codifying statute, like the Partnership Act 1890, takes existing laws and restates them clearly and logically in a series of general statements.

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How does the Partnership Act 1890 affect a partnership?

The Act sets out default rules for how partnerships function, but partners can modify these rules in their partnership agreement.

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What is a partnership?

A voluntary agreement between two or more individuals to conduct a business for mutual benefit.

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What is a partner's primary fiduciary duty?

Partners owe each other a duty of utmost good faith, requiring complete honesty and transparency in all dealings.

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What is the importance of the Partnership Act 1890?

The Act defines the default rights and obligations of partners in a partnership when the partnership agreement is silent on these matters.

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What is the 'holding out' principle?

A person who allows themselves to be represented as a partner can be held liable to creditors who relied on that representation.

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What is the significance of implied authority in a partnership?

A partner's actions are assumed to be authorized if those actions are necessary to carry on the business, unless restrictions are known.

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What is joint and several liability in a partnership?

Each partner is personally liable for the full amount of the partnership debt.

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What is the difference between a partnership's liability for contracts and wrongs?

The partnership is liable for contracts and wrongful acts (torts) of a partner acting within the ordinary course of business.

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What is a key difference between an incoming and outgoing partner's liability?

Incoming partners are not liable for debts incurred before joining, while outgoing partners remain liable for debts incurred before retirement unless released by agreement.

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How is partnership property defined?

Partnership property consists of assets brought into the partnership or acquired for its purposes, held exclusively for partnership purposes.

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Insurance for Partnership Property

Only the partnership, not individual partners, can take out insurance for partnership property.

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Dissolution of Partnership

The legal process of ending a partnership.

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Methods of Dissolution

The ways in which a partnership can be legally ended or dissolved, including through notice, expiry of term, death or bankruptcy of a partner, illegality, or court order.

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Notice (Dissolution)

The method of ending a partnership at will (no fixed term) by giving notice to other partners.

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Expiry of Term (Dissolution)

The method of ending a fixed-term partnership when the agreed time period expires.

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Death or Bankruptcy of a Partner (Dissolution)

The dissolution of a partnership upon the death or bankruptcy of a partner, unless otherwise agreed.

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Court Order (Dissolution)

A court can order the dissolution of a partnership in various circumstances, such as a partner's unsound mind, significant breaches of the agreement, or when the business is operating at a loss.

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Partnership (firm)

A type of partnership formed under the Partnership Act 1890, where partners are jointly and severally liable with unlimited liability. This means they are personally responsible for all partnership debts, even if they are not directly involved in the debt creation.

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Objective Test for Partnership

A test used to determine whether a partnership exists, particularly when there is no written agreement. This test involves considering the factors outlined in the Partnership Act 1890 and the overall behavior of the individuals.

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Codifying Statute

A type of legislation that restates existing law in a clear and organized way, often in a series of general propositions. The Partnership Act 1890 is an example, as it clarifies existing partnership law.

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Sharing profits as partnership evidence

While receiving a share of profits is a strong indicator of a partnership, it's not always conclusive. This evidence can be rebutted if other factors suggest otherwise, like repayment of debt or remuneration for services.

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Section 24 Partnership Act 1890

This section outlines the default rights and obligations of partners in a partnership. These apply unless specifically modified by the partnership agreement.

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Partner's authority & binding the firm

Each partner is an agent of the firm, and their actions within the usual course of business bind the firm, unless the third party knows the partner lacks authority.

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Joint & several liability (Scotland)

Each partner is liable for the entire debt of the partnership. Creditors can sue any or all partners for the full amount.

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Liability for wrongs by partners

The firm is liable for the wrongful acts of a partner acting in the ordinary course of business or with the authority of other partners. This includes contracts, torts, etc.

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Partnership property & purpose

Partnership property includes assets brought into the partnership or acquired for its purposes, and it must be used exclusively for the partnership's goals.

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Dissolution

The process of ending a partnership.

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Study Notes

I. Definition and Types of Partnerships

  • A partnership is a group of individuals agreeing to pursue a business for mutual gain.
  • Three types exist:
    • Partnership (firm): Governed by the Partnership Act 1890, partners have unlimited liability.
    • Limited Partnership (LP): Limited Liability for some partners. At least one general partner with unlimited liability.
    • Limited Liability Partnership (LLP): Limited liability for partners but more stringent disclosure requirements.

II. Partnership Act 1890

  • Governs partnerships (firms), supplying default rules.
  • Includes aspects like nature, partner-third party relations, partner-partner relations, and dissolution.
  • A codifying statute, restating existing law.

III. Formation of a Partnership

  • A partnership is a contractual relationship established by agreement (written, verbal, or implied).
  • No formal requirements, but a written agreement is common.
  • Determination of a partnership is an objective test
    • Shared profits is prima facie evidence, but liable to be rebutted.
    • Joint tenancy and sharing gross returns are not automatically partnerships.
  • Section 2 (of the 1890 Act) indicates factors
  • Partner rights (default are in Section 24):
    • Equal share in profits
    • Indemnity for expenses
    • Interest on loans (not capital)
    • Management right
    • Access to accounts.
  • Fiduciary duties are essential (utmost good faith, ongoing until final accounts).
    • Duties to provide information/accounts, no profiting from private contracts, no conflict of interest.

IV. Partners as Agents

  • Partners are agents of the firm and others. Acts within the normal scope/business bind the firm and partners, unless third-party is aware that partner lacked authority (or didn't believe person was partner).
  • Actual Express and Implied authority exist, alongside Apparent Authority (Freeman & Lockyer).
  • The firm is bound by acts of an authorized person (partner or not).
  • Firm not bound if actions are unconnected to business unless authorized.

V. Liability of Partners

  • Joint and Several Liability (Scotland): Each partner liable for the full debt.
  • **Joint Liability (England):**Each partner liable for a proportion.
  • Liability for Wrongs: Firm liable for wrongful acts/omissions of partners acting in the ordinary course of business.
  • Misapplication of Money/Property: Firm liable for misapplication by authorized partners.
  • Holding out: Representation as a partner (liable to creditors who rely).
  • Liability of Incoming & Outgoing Partners: New partners not liable for prior debts; leaving partners remain liable for past ones unless released.

VI. Partnership Property

  • Partnership property includes assets introduced or acquired for business, held for that purpose.
  • Property bought with partnership funds often designated as partnership property.
  • Insurance is taken out by the firm, not individual partners.
  • Partners cannot transfer their partnership shares without consent.

VII. Dissolution of Partnership

  • Dissolution ends the partnership.
  • Reasons for dissolution:
    • Agreement. Expiry. Notice (for partnerships at will).
    • Death, bankruptcy, illegality, court order (e.g. unsoundness of mind, conduct affecting business, loss/breach).
  • Post-dissolution:
    • Partners can't bind each other.
    • Partnership property is used to settle debts.
    • Surplus is distributed to partners.
  • Changes in partners dissolve the original partnership and create a new one which affects creditors.

VIII. Insolvency of Partnership

  • England: Partnership insolvency is governed differently (treated as independent entity) than Scotland where it's viewed as personal.

IX. Limited Partnerships (LPs)

  • General and limited partners, general have unlimited liability.
  • Limited partners contribute capital but have limited liability, and they do not manage.
  • May not have separate legal personality in England.

X. Limited Liability Partnerships (LLPs)

  • Hybrid between partnership and company with limited liability.
  • Separate legal personality.
  • Formation and registration requirements.
  • Members/membership
    • Changes in membership. Designated members have administrative duties
  • Liability issues.
  • Insolvency matters are covered by the Insolvency Act 1986.
  • Disqualification/protection of minority member issues.

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Description

Explore the key concepts of partnerships including their definition, types, and the legal framework governing them. This quiz covers the Partnership Act 1890 and the formation of partnerships, emphasizing the difference between various partnership types. Test your understanding of these essential business structures.

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