BLP Preparatory and Workshop Task Notes - Stuvia
Unit 1: Partnerships
Types of Partnership
Type of Partnership Legislation Comment
General Partnership Partnership Act 1890 Most common type of
partnership
Limited Partnership Limited Partnership Act Only used for investment
1907 funds
Limited Liability Limited Liability Mainly used for
Partnership Partnership Act 2000 professional firms
Preparatory Task 1
What is a joint venture?
Some legal systems recognise a joint venture as a legal entity, but English law does
not.
How are joint ventures achieved in English law?
• Using a JV company in which the parties are shareholders
• By contract
• Using a partnership
Advise the client whether there is a partnership with two other companies.
• M, D and E seem to be carrying out a business in common and they appear to
share responsibility for the business and decisions which affect it;
• It seems to be with a view to a profit, as they have agreed how to share
profits;
• Involved in the management through quarterly board meetings;
Further questions you should ask:
• Who owns the partnership assets?
• Does M have a right to examine the accounts?
• Does M have to contribute to losses?
• Can M veto any proposed new partner?
Preparatory Task 2
Drafting a Partnership Agreement for a business with four partners.
Why is it important for partners to get independent legal advice?
• Conflicting interests (CoC para 6)
• Be mindful of potential issue of conflict
1
, BLP Preparatory and Workshop Task Notes - Stuvia
Why have a written agreement?
• For contractual certainty
Partnership Act Partnership Agreement
What is the duration of the S 26 Resignation 2.1 Starts 1 Sept 2011
partnership? S 33 – Death or 2.2 So long as business
Bankruptcy continues
2.3 So long as two or more
Partners
Reasoning:
Clarity
Allows them to continue of one
Partner leaves by any means.
Prevents the Partnership from
being a Partnership at Will
(which we don’t want as it
means any of the Partners can
dissolve it at any time)
What share of profits is a S 24(1) All the 7.4 Capital profits and losses
partner entitled to in Partners are shared between Partners in
relation to: entitled to share proportions in which they own
- Income equally in the Partnership capital.
- Capital? capital and profits
of the business and 7.2 Partners own Partnership
must contribute capital in same proportions as
equally towards the capital contributions.
losses.
7.5 Partners can receive interest
S 24(4) A Partner is on their capital.
not entitled, before
the ascertainment Reasoning:
of profits, to Reflects how much money they
interest on the put in
capital subscribed
by him. 7.5 To give incentive to invest
more money in the future
2
, BLP Preparatory and Workshop Task Notes - Stuvia
How are decisions made in Only gives 3 10.1 Decision making – listing
relation to: decisions that need 10 decisions that need to be
to be made by made by unanimous consent
- Changing the nature unanimous
of the partnership; consent. (s. 24(7), 10.2 Day-to-day stuff
- A new partner 24(8), s. 19)
joining; Reasoning:
- Changing the terms All decisions which expose
of the partnership; Partnership to financial risk, and
and in turn the Partners.
- Other day-to-day
decisions? 10.2 more practical to not need
all Partners’ consent.
How much time must be S 24(5) All partners 12 The whole of his time and
devoted to the business? are entitled to take attention, excluding ill-health,
part in the injury, or maternity leave.
management of the
business, but have Reasoning:
no obligation to do To ensure they’re all equally
so. devoting time to the business.
What happens if a partner: Wants to leave – s. 18 – 3 months’ notice, but after
- Wants to leave; 26 give notice to 1 year of partnership. Also 19
- Dies; or dissolve states partnership continues.
- Is made bankrupt? partnership Reasoning:
Reasonable amount of time to
prepare after notice, other
partners can carry on, 1 year
limit shows some commitment.
Ceases to be a partner, but
Dies – s. 33 partnership continues
Partnership Reasoning:
dissolves on death, More commercially viable to
subject to any allow other partners to carry
agreement on.
17 – partnership shall not be
Bankruptcy – s. 33 determined by bankruptcy
Partnership Reasoning:
dissolves on Allows partners to carry on
bankruptcy
3
, BLP Preparatory and Workshop Task Notes - Stuvia
What happens if the S 25 No majority of The other Partners, acting
partners want to expel one the partners can unanimously, may by notice in
of the other partners? expel any partner writing expel that Partner from
unless a power to the Partnership and he shall
do so has been cease to be a partner
conferred by immediately on receipt of that
express agreement notice.
between the
partners. The Partner in question needs
to have satisfied an element of
clause 19.1
Workshop Task – Retirement of a Partner
Will Mary be liable for the debts totalling £36,600?
Pre-Retirement Debts:
• Partners are jointly liable for partnership debts s. 9
• Partners are severally liable for partnership debts under Civil Liability
Contribution Act 1978
• Partners are liable for debts incurred when they were a partner s. 17(2)
• Cl. 20.3.2 states that the value of Mary’s share takes account of the debts
owed to creditors
• If 25% of partnership is worth £100,000, Mary will receive that less 25% of
£36,600 = £90,850
• The creditor can sue Mary for debt, but she has an indemnity from her
partners cl. 20.6
Why is her retirement to be publicised in the London Gazette?
Post-Retirement Debts:
• Any person dealing with a partnership is entitled to treat all apparent
partners as being partners until they receive notice of the change s. 36(1)
• Persons dealing with the partnership must receive actual notice
• For everyone else publication in The Gazette is sufficient notice s. 36(2)
• If you allow yourself to be “held out” as a partner, you are liable for post
retirement debts s. 14
• Cl. 28 requires partners to comply with Mary’s s. 36 instructions
Practical Point:
• Mary’s indemnity right against partners may not be worth anything if they
are in financial distress.
4
Unit 1: Partnerships
Types of Partnership
Type of Partnership Legislation Comment
General Partnership Partnership Act 1890 Most common type of
partnership
Limited Partnership Limited Partnership Act Only used for investment
1907 funds
Limited Liability Limited Liability Mainly used for
Partnership Partnership Act 2000 professional firms
Preparatory Task 1
What is a joint venture?
Some legal systems recognise a joint venture as a legal entity, but English law does
not.
How are joint ventures achieved in English law?
• Using a JV company in which the parties are shareholders
• By contract
• Using a partnership
Advise the client whether there is a partnership with two other companies.
• M, D and E seem to be carrying out a business in common and they appear to
share responsibility for the business and decisions which affect it;
• It seems to be with a view to a profit, as they have agreed how to share
profits;
• Involved in the management through quarterly board meetings;
Further questions you should ask:
• Who owns the partnership assets?
• Does M have a right to examine the accounts?
• Does M have to contribute to losses?
• Can M veto any proposed new partner?
Preparatory Task 2
Drafting a Partnership Agreement for a business with four partners.
Why is it important for partners to get independent legal advice?
• Conflicting interests (CoC para 6)
• Be mindful of potential issue of conflict
1
, BLP Preparatory and Workshop Task Notes - Stuvia
Why have a written agreement?
• For contractual certainty
Partnership Act Partnership Agreement
What is the duration of the S 26 Resignation 2.1 Starts 1 Sept 2011
partnership? S 33 – Death or 2.2 So long as business
Bankruptcy continues
2.3 So long as two or more
Partners
Reasoning:
Clarity
Allows them to continue of one
Partner leaves by any means.
Prevents the Partnership from
being a Partnership at Will
(which we don’t want as it
means any of the Partners can
dissolve it at any time)
What share of profits is a S 24(1) All the 7.4 Capital profits and losses
partner entitled to in Partners are shared between Partners in
relation to: entitled to share proportions in which they own
- Income equally in the Partnership capital.
- Capital? capital and profits
of the business and 7.2 Partners own Partnership
must contribute capital in same proportions as
equally towards the capital contributions.
losses.
7.5 Partners can receive interest
S 24(4) A Partner is on their capital.
not entitled, before
the ascertainment Reasoning:
of profits, to Reflects how much money they
interest on the put in
capital subscribed
by him. 7.5 To give incentive to invest
more money in the future
2
, BLP Preparatory and Workshop Task Notes - Stuvia
How are decisions made in Only gives 3 10.1 Decision making – listing
relation to: decisions that need 10 decisions that need to be
to be made by made by unanimous consent
- Changing the nature unanimous
of the partnership; consent. (s. 24(7), 10.2 Day-to-day stuff
- A new partner 24(8), s. 19)
joining; Reasoning:
- Changing the terms All decisions which expose
of the partnership; Partnership to financial risk, and
and in turn the Partners.
- Other day-to-day
decisions? 10.2 more practical to not need
all Partners’ consent.
How much time must be S 24(5) All partners 12 The whole of his time and
devoted to the business? are entitled to take attention, excluding ill-health,
part in the injury, or maternity leave.
management of the
business, but have Reasoning:
no obligation to do To ensure they’re all equally
so. devoting time to the business.
What happens if a partner: Wants to leave – s. 18 – 3 months’ notice, but after
- Wants to leave; 26 give notice to 1 year of partnership. Also 19
- Dies; or dissolve states partnership continues.
- Is made bankrupt? partnership Reasoning:
Reasonable amount of time to
prepare after notice, other
partners can carry on, 1 year
limit shows some commitment.
Ceases to be a partner, but
Dies – s. 33 partnership continues
Partnership Reasoning:
dissolves on death, More commercially viable to
subject to any allow other partners to carry
agreement on.
17 – partnership shall not be
Bankruptcy – s. 33 determined by bankruptcy
Partnership Reasoning:
dissolves on Allows partners to carry on
bankruptcy
3
, BLP Preparatory and Workshop Task Notes - Stuvia
What happens if the S 25 No majority of The other Partners, acting
partners want to expel one the partners can unanimously, may by notice in
of the other partners? expel any partner writing expel that Partner from
unless a power to the Partnership and he shall
do so has been cease to be a partner
conferred by immediately on receipt of that
express agreement notice.
between the
partners. The Partner in question needs
to have satisfied an element of
clause 19.1
Workshop Task – Retirement of a Partner
Will Mary be liable for the debts totalling £36,600?
Pre-Retirement Debts:
• Partners are jointly liable for partnership debts s. 9
• Partners are severally liable for partnership debts under Civil Liability
Contribution Act 1978
• Partners are liable for debts incurred when they were a partner s. 17(2)
• Cl. 20.3.2 states that the value of Mary’s share takes account of the debts
owed to creditors
• If 25% of partnership is worth £100,000, Mary will receive that less 25% of
£36,600 = £90,850
• The creditor can sue Mary for debt, but she has an indemnity from her
partners cl. 20.6
Why is her retirement to be publicised in the London Gazette?
Post-Retirement Debts:
• Any person dealing with a partnership is entitled to treat all apparent
partners as being partners until they receive notice of the change s. 36(1)
• Persons dealing with the partnership must receive actual notice
• For everyone else publication in The Gazette is sufficient notice s. 36(2)
• If you allow yourself to be “held out” as a partner, you are liable for post
retirement debts s. 14
• Cl. 28 requires partners to comply with Mary’s s. 36 instructions
Practical Point:
• Mary’s indemnity right against partners may not be worth anything if they
are in financial distress.
4
