Notes
Note:
tax law General Partnership Test: (1) two or more persons (no upper limit) (2) carry on business in common (3) with intention to make profit No need for partnership agreement; no need financial contribution▪ Sharing of profit-prima facie evidence unless(1) repayment of debt, (2) income (3) annuity, c.f. loss-sharing is weaker evidence ▪ Sharing of gross return / joint ownership of property -NOT evidence▪ ○
Binding power:
Actual authority-(1) partnership agreement (2) partners approval (3) implied -previous dealings▪ Apparent authority: usual way of business (reasonable 3rd party) unless(1) no actual authority (2) 3rd party know lack / do not know partner ▪ Partners creditor can recover from (1) partnership assets and (2) personal assets of any partner (joint and severally) ▪ Partner personally bound (but partnership not) if no authority▪ ○ Unlimited liability [new partner] not liable for previous debt even if acquires right to participate in management of business ▪ even if outgoing partner transfers all interest (interest = right to receive profits)▪ ▪ [outgoing partner] (1) liable for previousdebt ▪ (2) liable for furtherdebt unless(a) notice to existing creditors (not liable vis-a-vis these creditors if actual notice despite no gazette) (b) London gazette notice ▪ ▪ [person holding out as partner / knowingly allow person] liable as if partner▪ Can enter into indemnity -but just internal apportionment▪ ○ Partnership property [no right to personal use / personal debt] Remains property of individual property if make clear outset -even if firm pays for maintenance▪ Owned by partner before formation of partnership -presumed remain that partner▪ Note: if partner gives capital contribution by way of property, property becomes partnership property▪ ○ Profit sharing (presumed equal split subject to partnership agreement) May assign interest (assignee by default no management right▪ Partner's debt to partnership -interest at 5%▪ Income taxre share of firm's profit -even if no actual distribution▪ If partnership agreement provides unequal split, loss follows▪ ○ Decision-making Presumed equal vote (even if different capital contribution) ▪ Unanimous consent:(1) admission of new partner (2) change in nature of business (3) change PA Note: decision to end partnership does not require unanimous vote (as can be done via retirement)▪ ▪ No right to expel partner if no express right in partnership agreement Expulsion of partner cannot be done by majorityunless partnership agreement (c.f.strictly speaking not even unanimous approval) ▪ ▪ ○ Dissolution:(1) retirement of any partner from partnership at will (no term / goal); (2) death / bankrupt of any partner (3) unlawful business (4) expiration of term (5) court order -a partner permanently incompetent to enter contrat/ conduct prejudicially affect partnership's business, wilful and persistent breach Notice to retire/ change in partners would effectively bring partnership to end Free to retireat any time (c.f.LLP requires notice to other partners)▪ ▪ Partners continue power to bind partnership to wind up business ▪ Waterfall: (1) repay 3rd party creditors (2) repay partners loan (3) return partners' contribution -then split excess profits in relevant shares ▪ ○ Other rules Each partner has right to inspect books and records▪ Not entitled to be paid for work (but entitled to be indemnified) ▪ Fiduciary duty to each other (duty to disclose + not compete)▪ must account profits if work in competing business -note no post-partnership restraint of trade▪ can retain profits if full disclosure and consented by other partners▪ ○ Limited partnership (must be registeredwith companies house) -at least 1 LP and 1 GP [LP] partner have limited role in day to day management and just contributes capital▪ [GP] general partners will have unlimited liability ▪ ○
Letterhead:(1) name (2) each partner (3) address
c.f. sole trader: (1) business name (2) real name (3) business address▪
○ Insolvency: (1) negotiate with creditor (2) individual voluntary arrangement (3) bankruptcy IVA must be drafted by insolvency practitioner: (1) interim order preventing bankruptcy petitioner (2) report re realistic chance of accepting + calling meeting Approved by 75%unsecured creditors ▪ Binding on all ordinary unsecured creditors (with notice of meeting) even if not attend / vote not preference creditor / secured creditor unless agree□ ▪ Supervisor / creditor can petition bankruptcy if breach/ false info▪ ▪ Bankruptcy -creditor must stop chasing after application made (can be by debtoronline)
- or more unsecured creditor at least £5,000▪
- / 1
Testfor insolvent: (1) debt payable immediately + debtor no funds OR (2) payable future and no reasonable prospects -Deemed insolvency if (1) made statutory demand for 3 weeksre liquidateddebt (£5,000); □ (2) make statutory demand for proof of ability to pay re future liability (£5,000) + cannot show reasonable prospect □ ▪ All assets vested in trustee in bankruptcy -Official receiver (or nominee of creditors), except(1) salary, (2) day-to-day living (3) tools for job ▪ Waterfall: (1) cost of bankruptcy (2) preferential debts (3) ordinary unsecured (3) postponed▪ During bankruptcy / order (1 year)-cannot(1) director or partner (2) trade under another name (3) borrow ▪ ▪ ○ • Business law and practice* SQE Notes Page 1 © 2023 KC Leung. All rights reserved. Business Law and Practice