BUSI1104

Business Law

Lecture 12
Partnerships
 Partnership

Review
Business organisations

Unincorporated Incorporated

Limited
Limited
Partnershi Liability
Sole trader Partnershi Company
p Partnershi
p
p

Unlimited Limited

Private Public
 Partnership

Aims

After the lecture (and reading) you will be able to:

1. Demonstrate a knowledge of the legislation governing the partnership;

2. Discuss the formation of partnership;

3. Explain the authority of partners in relation to partnership activity;

4. Analyse the liability of various partners for partnership debts and other
liabilities; and

5. Explain the termination of a partnership, and partners’ subsequent rights and

liabilities.
 Partnership

Outline
Partnership

Partners’
Relationship Termination
Definition & relationship
between of
formation with third
partners partnership
parties
Express &
Definition of Authority of
implied Dissolution
partnership partner
terms

Partner’s
Fiduciary Effect of
Formation liability for
duties dissolution
debts

Partner’s
Partnership Expulsion of
liability for
by estoppel partners
wrongs
Liability of
incoming and
outgoing
partners
 Partnership
Definition & formation
A partnership is:
1. the relation which subsists
2. between persons
3. carrying on business
4. in common
5. with a view of profit
PA, s.1 (1)
See also: s.1(2)(a) & s.2 for relations
which are NOT p/ship
6. Members of company
7. Joint tenants
8. Sharing of gross returns
9. People sharing profits who are: (a)
creditor; (b) employee; (c)
widow(er)/child of deceased
partner; (d) lender; (e) seller of
business
A partnership can be formed by:
written agreement
oral agreement
Inference (from conduct)
Formalities not required​
BUT signed partnership deed is
recommended (sample in Moodle)
Partnership agreement can be
amended if all partners agree:
PA, s.19
Partnership agreement can even be
amended by conduct:
Pilling v Pilling (1887)​
 Partnership

A
Partner by holding out/estoppel - PA, s.14(1) B

C $

If a person represents himself/herself
Illustration 1
1) A tells B he is a partner to C (this is not true!)
2) As a result of A’s representation, B lends C money
or knowingly allows himself/herself to be 3) A is liable for the loan together with C
represented as a partner
Illustration 2
4) C tells B that A is his partner (this is not true)
5) A knew (about the misrepresentation) but did nothing to correct this

for purposes of gaining credit 6) As a result of the statement by C, B lend C money

7) A is liable for the loan together with C

he/she will be estopped from

denying liability as a partner​

Tower Cabinet Co. v Ingram (1949)​

 Partnership

Definition & formation

Relationship between
partners

Rights and duties provided by express terms and implied terms

Express terms: Partnership agreement

Implied terms: Partnership Act

1. Financial terms
2. Management powers
Some requires majority consent; others by unanimous consent
 Partnership

Definition & formation

Relationship between PA, s. 19
partners Mutual rights and duties of partners can be provided by:

Express terms Implied terms

implied by the provisions of the

the partnership agreement PA
(in the absence of express terms)

Pilling v Pilling (1887)​
 Partnership

Definition & formation

Relationship between Terms Implied financial terms​ Equal sharing of capital, profits & losses​

partners implied Indemnity for expenses / liabilities​

by  PA, s.24
Interest for advance​

No interest on capital​

No remuneration​
 
Participation in management​
Implied management
powers​ Introduce a new partner (unanimous
consent required)​
Change nature of business (unanimous
consent required)​ ​
Access to partnership books​
 Partnership

Definition & formation

Duty to not
Relationship between Duty to render Duty to account
partners compete with the
accounts​ for private profits ​
firm​

PA, s. 29(1):
PA, s. 28: Every partner must PA, s. 30:
account to the firm for If a partner carries on a
Every partner must give
any benefit he has had business which
true accounts and full
without the consent of competes with the firm,
information of all
the other partners from he must account for and
things affecting the
any transaction pay over any profits.​
firm.​
concerning the
partnership.​

Bentley v Craven (1853)
Law v Law (1905)
Partner bought Don King Productions v
A partner bought his
commodity privately Warren 
sibling partner out
and later sold it to the (1999)​;
without fully disclosing
firm, making profits Aas v Benham (1891)​
the firm’s value​
for himself.​​
 Partnership

Definition & formation

Relationship between
partners
Expelling a partner
Not easy!

PA, s.25​

1) No majority of partners can expel any partner​

2) unless a power to do so has been conferred by express agreement between the partners​

3) The power to expel a partner must not be abused. The expelling partners must show
that:​
(i) Complaint leading to expulsion must be covered by the clause​
(ii) Partner expelled was told what he had done wrong + given chance to explain​
(iii) Power exercised in good faith​

• Alternative: dissolution of the firm (see termination of partnership)

 Partnership

Definition & formation

Relationship between
partners PA,s.5 Power of partner to bind the firm.
Relations with Every partner is an agent of the firm and
outsiders his other partners for the purpose of the
PA,s.5  Power of Every partner is an agent for the purpose of business of the partnership; and the acts
partner to bind the of the firm and his other the business of the of every partner who does any act for the
firm partners  partnership carrying on in the usual way business of
the kind carried on by the firm of which
he is a member bind the firm and his
partners, unless the partner so acting has
in fact no authority to act for the firm in
business of the kind the particular matter, and the person with
and the acts of every for the carrying on in the whom he is dealing either knows that he
carried on by the firm of
partner who does any act usual way  has no authority, or does not know or
which he is a member
believe him to be a partner.

and the person with whom Mercantile Credit Co Ltd v Garrod

unless the partner so he is dealing either (1962); Goldberg v Jenkins (1889) –
acting has in fact no • knows that he has no see Riches & Allen, p.125-6.
bind the firm and
authority to act for the
his partners authority, or
firm in the particular
• does not know or believe
matter,
him to be a partner. ​
 Partnership

A enters into a contract with a TP.

A B C Q: Is A, B and C bound by the contract?
Partners
Did B and C agree
that A should make the contract?

TP Yes No

Was the contract:

(i) Made on behalf of the firm;
A had actual authority.
and (ii) The type of contract the
A, B and C are bound by the
firm would usually make; and
contract
(iii) Made in the usual way?

Yes No

A, B and C are bound B and C are not bound

by the contract by the contract

Unless

TP knew that A had TP did not know or believe

no actual authority A to be a partner
13
 Partnership
Definition & formation
Relationship between
partners
Relations with outsiders
Where, by any wrongful act or omission of
any partner
acting in the ordinary course of the business
of the firm - Dubai Aluminium Co v Salaam
(2002); Chittick v Maxwell (1993)
or with the authority of his co-partners,
loss or injury is caused to any person not
being a partner in the firm, or any penalty is
incurred,
the firm is liable therefor to the same extent
as the partner so acting or omitting to act.
PA, s.10 Liability for wrongs
Where, by any wrongful act or
omission of any partner acting
in the ordinary course of the
business of the firm, or with the
authority of his co-partners, loss
or injury is caused to any person
not being a partner in the firm,
or any penalty is incurred, the
firm is liable therefor to the
same extent as the partner so
acting or omitting to act.
 Partnership

Definition & formation

Relationship between
partners
Relations with outsiders
Liability of outgoing and incoming partners
PA, s. 17

• Incoming partner not liable for pre-existing debts of the

firm
• Retiring partner remains liable for debts incurred
before retirement

PA, s. 36

• Retiring partner responsible for debts incurred after

retirement until give notice of the change
• A notice in the London Gazette is sufficient notice.
 Partnership

Definition & formation Judicial dissolution

Relationship between
partners
Relations with outsiders
Termination of Non judicial dissolution
partnership 1. Ending of a specified period
2. Achievement of a specified purpose
3. By the giving of notice
4. Death of a partner
5. Bankruptcy
6. Illegality
1. Partner’s incapacity, mental or
physical
2. Conduct prejudicial to business
3. Wilful / persistent breach of p/s
agmt, or conduct affecting the r/ship
4. Business can only be carried on at a
loss
5. On just & equitable grounds
 Partnership

Definition & formation

Relationship between
partners
Relations with
outsiders PA, s.38
Termination of (i) The authority of each partner continues so far as necessary to wind up
partnership
the affairs of the p/ship and to complete unfinished transactions
(ii) Partners will not bind the firm in respect of new transactions
(iii) Partners entitled to have p/ship property applied in payment of firm’s
debts & liabilities, and surplus assets applied in payment of what may be
due to the partners (after deducting sums the partners owe to the firm) (see
s. 39 – apply to court)
 Partnership > Conclusions / Summary of Key Issues

Definition & formation 1. The traditional partnership is a simple business structure with great
Relationship between
level of flexibility
partners
Relations with outsiders 2. A partnership is a relationship between persons – the relationship will
Termination of be imposed by law if it satisfies the requirements of the PA
partnership
Conclusion/summary 3. A partnership may be formed in various ways – in writing, oral or
implied

4. Terms of partners relationship may be express or implied, and certain

fiduciary duties are imposed by PA

5. All partners owe duties to third parties if the contracting partner has an
authority to contract

6. Partnership may be terminated by agreement or by an order of the court

 Partnership > Follow up

After following-up this lecture with reading you should be able to answer this question
from:

2017-2018 exam paper:

Briefly explain the meaning of limited liability. What types of business organisations
allow for limited liability?
(10 marks)

2017-2018 (resit) exam paper:

Walter is starting his car wash business with his good friend Skyler. Advise them of the
advantages and disadvantages if they carry on business as a partnership compared with a
private limited company.
(10 marks)
Appendix
 Partnership

Duty to not compete with the firm​

• Don King Productions v Warren (1999)​

• Warren entered into some personal contracts with boxers which competes with the
firm’s business​

• Aas v Benham (1891)​
• Benham a partner of shipbroking firm, dealing with the chartering of vessels. He gave
assistance in the formation of a company whose business is building ships. Used information &
experience gained as a shipbroker in the promotion of the company. Even used the firm’s
notepaper. Was paid a fee for his work and appointed director of the company.​
• HELD: no breach of fiduciary duties as the information was not used for partner’s own benefit
in a competing business.​
 Partners’ relationship with third parties > Partner’s liability for wrongs

Dubai Aluminium Co v Salaam (2002)

•A partner of a legal firm acted for the firm in drafting agreements used to
defraud the claimant.
•Held – drafting the agreements is to be regarded as an act done within the
ordinary course of the firm's business even though they were drafted for a
dishonest purpose.
 
Chittick v Maxwell (1993)
•The claimant sued the partners of his son-in-law, a solicitor, for defective
agreement.
•Held – the son-in-law prepared the agreement not for the firm but for on
his own account.
back
 Partnership
Review
A, B and C are partners in Outdoor
Adventures. What is the legal position if:
a)A and B wish to invite D to become a
partner in the firm, but C disagrees?
b)A, without consulting the others,
bought two new off-road vehicles from
Humber?
c)As a result of A’s purchases, the
partnership now has insufficient funds
to pay their creditors?
(a) All existing partners must consent to new partners being admitted
under s.24(7) PA. So, unless partnership agreement expressly stated
another arrangement for admitting new partners, then Trent cannot join
the partnership.
(b) Depends if A had the authority;
A had actual authority if B and C expressly or implicitly agreed that he
could make such purchases;
A had apparent authority if B and C led Humber to believe that A could
agree such purchases;
A had usual authority if he made the contract on behalf of the firm; the
contract was of the type that the firm would usually make and was made
in the usual way;
Otherwise, A acting outside his authority, so B and C not bound by the
contract.
(c) All partners are personally liable to pay partnership’s debts.
Under s.24(1) PA, if the partnership agreement is silent, profits and
losses are shared equally.
If profits are to be shared in certain proportions, but agreement is silent
as to losses, then losses should be shared in the same proportions.