BLP – WHOLE MODULE SUMMARY
Business Law and Practice – Week 1
Skill: legal research
Partnerships
Traditional Partnerships
- Governed by the partnership Act 1980 (PA 1890)
- No formalities required to set it up
- Defined as a relationship btw persons carrying on a business in common with a view to make
a profit (s 1(1) PA 189) Parties don’t always know they are in a partnership – no need for
an intention to create a partnership is advisable to seek legal advice in order that the
partnership agreement is drafted effectively
- Not a separate legal entity partners have unlimited liability
- S 2 PA 1890 contains a list of rules for determining the existences of a partnership
i. Are profits shared? this will be prima facie evidence of the existence of a
partnership but not conclusive evidence (s 2(3) PA 1890)
ii. If all parties take part in decision making more likely there is a partnership
iii. Is there a loan of money from one partner to the other?
Partnership
Advantages Disadvantages
No set up costs cause no formality is Unlimited personal liability the
required traditional partnership has no legal
No legal formalities - no filings at Companies entity parties, therefore the individuals
House - advisable to have a Solicitor draw a are personally liable for any debt of the
Partnership Agreement to overrule the partnership
default provisions of PA 1890 on profit If there is no Partnership agreement on
sharing ratio and decision making. for example how to share profits and
It will benefit of complete privacy losses, these will be shared equally
Limited investment opportunities -
business will not grow on a larger
scale
- Overriding duty owed by partners to one another (like that owed by trustee to a beneficiary)
equitable principles.
i. Honest and full disclosure (s 28 PA 1890)
ii. Unauthorised personal profit (s 29(1) PA 1890)
iii. Conflict of duty and interest (s 30 PA 1890)
Nature of partner’s liability (ss 9, 10 and 12 1890)
- Contractual liability every partner is liable jointly with the other partner for all debts and
obligations of the partnership (s 9 PA 1890)
- Tortious liability jointly and severally liable (ss 10 and 12 PA 1890)
Liability for non-partners
- New partners: s 17 PA 1890
, i. Not automatically liable for debts incurred by the partnership bf they joined
ii. Can still be liable after they retire in respect to any debt incurred while they were
partners to relieve from liability a partnership may novate the relevant
agreement, provided creditor consented (s 17 (3)).
Liability of non-partners: former partners
- If former partner liable after he has left 3rd party can treat all apparent partners of the
firm as jointly liable to pay any debt incurred by the partnership UNLESS the 3 rd party has
been notified of the change by:
i. Actual notice
ii. Constructive notice (by virtue of publication of the departure in the London Gazette
(s 36(2))).
Liability of non-partners: ‘holding-out’ (S 14 PA 1890) liability incurred by the NON-PARTNER, not
the liability of the firm
- If partner has held themselves out as a partner may be personally liable
- Requirements set out in s 14 are:
i. A representation to a 3rd party to the effect that a person is a partner,
ii. The 3rd party’s action in response
iii. The 3rd party’s state of mind (believing the representation)
The relationship btw the firm and outsiders: contracts binding the firm
in context of a partnership depends on whether the person acting is a partner or not
- Partners
i. S 5 PA 1890 special statutory rule of agency which applies only when the agent in
question is partner
ii. Common law of agency may also apply where s 5 isn’t relevant
- Non-partners
i. Common law of agency applies
1. Partners content with the agent’s act
a. They give the agent implied, expressed or actual authority to the agent to act on the
behalf of the firm
b. They can ratify the agent’s act and adopt the contract expressly, or by simply going
ahead and performing it
2. When partners aren’t content
a. Power of a partner to bind the firm against the others’ wishes: s 5 PA 1890
i. Always the place to look where deciding whether or not an act of a partner
binds a firm but does not displace the application of ordinary common law
agency entirely.
ii. Following s 5 PA 1890 a partner’s act will bind a firm if viewed objectively:
1. The act is for carrying on business of the kind carried on by the firm
2. The act is for carrying on such a business in the usual way
iii. The firm will not be bound if:
1. The 3rd party knew that the partner in question wasn’t authorised to
enter such contract on behalf of the firm
2. The 3rd party didn’t know or believe that the partner was a partner
b. Power of a non-partner to bind the firm against the partners’ wishes: apparent
authority at common law
i. Common law rules of agency if no actual authority can still bind the firm if
agent has apparent (ostensible) authority arises when the principal
, represents or permits a representation to be made to a 3 rd party that a
person has authority to bind the firm
ii. If representation is that a particular person is a partner (when in fact they
are not) the firm is said to be ‘holding out’ that person as a partner
Taxation
- Each partner is liable to tax as an individual on their share of the income or gains of the
partnership tax transparency
- HRMC requires partnerships to make a single tax return of its profits which must be agreed
with HMRC
- Partners must also submit their own individual tax return containing all income received
from the partnership + other income receipts
- Partners in a partnership are liable to pay both income tax and capital gain tax
Income tax Capital gains tax
- Each partner is liable personally for the - Normal capital gains tax principle apply
income tax on their share of the on disposal of a capital asset by a
partnership profits partnership each partner treated as
- Not liable for the tax on other partners’ owning a fractional share of the asset
shares of partnership profits on disposal they are own making
disposal for their share and will be
taxed on this share of any gain
- Partner’s fractional share should be
based upon the agreed profit-sharing
ration and if not split equally according
to s 24(1) PA 1890
, MCQ
Which one of the following is correct in relation to the tax treatment of partnerships?
Partners in a partnership are liable to pay income tax and capital gains tax on their share of
the income and capital gains of the partnership. Only the partners therefore need to submit
tax returns.
Partners in a partnership are liable to pay income tax and capital gains tax on their share of
the income and capital gains of the partnership. The partnership itself is also liable to pay
corporation tax.
Partners in a partnership are not liable to any tax in relation to the profits and gains of the
partnership. The partnership itself is liable to pay corporation tax.
Partners in a partnership are liable to pay income tax and capital gains tax on their share of
the income and capital gains of the partnership. The partnership itself is also liable to pay
income and capital gains tax.
Partners in a partnership are liable to pay income tax and capital gains tax on their share of
the income and capital gains of the partnership. The partnership itself is not liable to pay tax.
Correct
Correct. A partnership is not a separate legal entity and therefore does not pay tax.
A firm of surveyors is seeking your advice in relation to a contract entered into by one of the
partners. The contract was for a building project and the managing partner had agreed that the
partners would do the work for £5,000. The remaining partners are upset as they believe that the
managing partner significantly under-quoted for this project and that in fact they should be charging
at least £7,000.
Work has not yet started on this contract since the remaining partners are seeking to avoid the
contract on the basis that the managing partner was not authorised to enter into it. The written
partnership agreement requires that all quotes for work should be signed off by at least two
partners.
Which one of the following is the best advice to the partnership?
Business Law and Practice – Week 1
Skill: legal research
Partnerships
Traditional Partnerships
- Governed by the partnership Act 1980 (PA 1890)
- No formalities required to set it up
- Defined as a relationship btw persons carrying on a business in common with a view to make
a profit (s 1(1) PA 189) Parties don’t always know they are in a partnership – no need for
an intention to create a partnership is advisable to seek legal advice in order that the
partnership agreement is drafted effectively
- Not a separate legal entity partners have unlimited liability
- S 2 PA 1890 contains a list of rules for determining the existences of a partnership
i. Are profits shared? this will be prima facie evidence of the existence of a
partnership but not conclusive evidence (s 2(3) PA 1890)
ii. If all parties take part in decision making more likely there is a partnership
iii. Is there a loan of money from one partner to the other?
Partnership
Advantages Disadvantages
No set up costs cause no formality is Unlimited personal liability the
required traditional partnership has no legal
No legal formalities - no filings at Companies entity parties, therefore the individuals
House - advisable to have a Solicitor draw a are personally liable for any debt of the
Partnership Agreement to overrule the partnership
default provisions of PA 1890 on profit If there is no Partnership agreement on
sharing ratio and decision making. for example how to share profits and
It will benefit of complete privacy losses, these will be shared equally
Limited investment opportunities -
business will not grow on a larger
scale
- Overriding duty owed by partners to one another (like that owed by trustee to a beneficiary)
equitable principles.
i. Honest and full disclosure (s 28 PA 1890)
ii. Unauthorised personal profit (s 29(1) PA 1890)
iii. Conflict of duty and interest (s 30 PA 1890)
Nature of partner’s liability (ss 9, 10 and 12 1890)
- Contractual liability every partner is liable jointly with the other partner for all debts and
obligations of the partnership (s 9 PA 1890)
- Tortious liability jointly and severally liable (ss 10 and 12 PA 1890)
Liability for non-partners
- New partners: s 17 PA 1890
, i. Not automatically liable for debts incurred by the partnership bf they joined
ii. Can still be liable after they retire in respect to any debt incurred while they were
partners to relieve from liability a partnership may novate the relevant
agreement, provided creditor consented (s 17 (3)).
Liability of non-partners: former partners
- If former partner liable after he has left 3rd party can treat all apparent partners of the
firm as jointly liable to pay any debt incurred by the partnership UNLESS the 3 rd party has
been notified of the change by:
i. Actual notice
ii. Constructive notice (by virtue of publication of the departure in the London Gazette
(s 36(2))).
Liability of non-partners: ‘holding-out’ (S 14 PA 1890) liability incurred by the NON-PARTNER, not
the liability of the firm
- If partner has held themselves out as a partner may be personally liable
- Requirements set out in s 14 are:
i. A representation to a 3rd party to the effect that a person is a partner,
ii. The 3rd party’s action in response
iii. The 3rd party’s state of mind (believing the representation)
The relationship btw the firm and outsiders: contracts binding the firm
in context of a partnership depends on whether the person acting is a partner or not
- Partners
i. S 5 PA 1890 special statutory rule of agency which applies only when the agent in
question is partner
ii. Common law of agency may also apply where s 5 isn’t relevant
- Non-partners
i. Common law of agency applies
1. Partners content with the agent’s act
a. They give the agent implied, expressed or actual authority to the agent to act on the
behalf of the firm
b. They can ratify the agent’s act and adopt the contract expressly, or by simply going
ahead and performing it
2. When partners aren’t content
a. Power of a partner to bind the firm against the others’ wishes: s 5 PA 1890
i. Always the place to look where deciding whether or not an act of a partner
binds a firm but does not displace the application of ordinary common law
agency entirely.
ii. Following s 5 PA 1890 a partner’s act will bind a firm if viewed objectively:
1. The act is for carrying on business of the kind carried on by the firm
2. The act is for carrying on such a business in the usual way
iii. The firm will not be bound if:
1. The 3rd party knew that the partner in question wasn’t authorised to
enter such contract on behalf of the firm
2. The 3rd party didn’t know or believe that the partner was a partner
b. Power of a non-partner to bind the firm against the partners’ wishes: apparent
authority at common law
i. Common law rules of agency if no actual authority can still bind the firm if
agent has apparent (ostensible) authority arises when the principal
, represents or permits a representation to be made to a 3 rd party that a
person has authority to bind the firm
ii. If representation is that a particular person is a partner (when in fact they
are not) the firm is said to be ‘holding out’ that person as a partner
Taxation
- Each partner is liable to tax as an individual on their share of the income or gains of the
partnership tax transparency
- HRMC requires partnerships to make a single tax return of its profits which must be agreed
with HMRC
- Partners must also submit their own individual tax return containing all income received
from the partnership + other income receipts
- Partners in a partnership are liable to pay both income tax and capital gain tax
Income tax Capital gains tax
- Each partner is liable personally for the - Normal capital gains tax principle apply
income tax on their share of the on disposal of a capital asset by a
partnership profits partnership each partner treated as
- Not liable for the tax on other partners’ owning a fractional share of the asset
shares of partnership profits on disposal they are own making
disposal for their share and will be
taxed on this share of any gain
- Partner’s fractional share should be
based upon the agreed profit-sharing
ration and if not split equally according
to s 24(1) PA 1890
, MCQ
Which one of the following is correct in relation to the tax treatment of partnerships?
Partners in a partnership are liable to pay income tax and capital gains tax on their share of
the income and capital gains of the partnership. Only the partners therefore need to submit
tax returns.
Partners in a partnership are liable to pay income tax and capital gains tax on their share of
the income and capital gains of the partnership. The partnership itself is also liable to pay
corporation tax.
Partners in a partnership are not liable to any tax in relation to the profits and gains of the
partnership. The partnership itself is liable to pay corporation tax.
Partners in a partnership are liable to pay income tax and capital gains tax on their share of
the income and capital gains of the partnership. The partnership itself is also liable to pay
income and capital gains tax.
Partners in a partnership are liable to pay income tax and capital gains tax on their share of
the income and capital gains of the partnership. The partnership itself is not liable to pay tax.
Correct
Correct. A partnership is not a separate legal entity and therefore does not pay tax.
A firm of surveyors is seeking your advice in relation to a contract entered into by one of the
partners. The contract was for a building project and the managing partner had agreed that the
partners would do the work for £5,000. The remaining partners are upset as they believe that the
managing partner significantly under-quoted for this project and that in fact they should be charging
at least £7,000.
Work has not yet started on this contract since the remaining partners are seeking to avoid the
contract on the basis that the managing partner was not authorised to enter into it. The written
partnership agreement requires that all quotes for work should be signed off by at least two
partners.
Which one of the following is the best advice to the partnership?
