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Summary Business Law and Practice (BLP)
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Business Law and PracticeWorkshop 1: Partnership
Outcome 1: Recognise and advise on the existence of a partnership, and the terms that regulate the
running of the partnership business
A partnership is formed as soon as the s1 Partnership Act 1890 definition is satisfied,
regardless of the parties’ intentions.
3 elements, two or more [legal] persons agree to:
1. Carrying on a business (has the business started?)
2. In common (look at roles & responsibilities; capital contribution and financial risk)
3. With a view to profit (even if make a loss, definition fulfilled if intention is there)
s1(2) PA 1890: A Partnership cannot be formed through a company – cannot be
registered under CA.
s2 PA 1890:
1) JOINT PROPERTY will not create a partnership – s2(1)
2) Sharing GROSS RETURNS [income before deductions] will not create a partnership – s2(2)
3) Sharing NET PROFITS [sales after deductions] prima facie evidence of partnership – s2(3)
If no written agreement – the provisions in the PA 1890 apply.
Outcome 2: Advise on the key provisions of the Partnership Act 1890
Starts as soon as s1 PA 1890 satisfied (discussed above)
Profits
Profit-sharing: s24(1) must share profits equally & contribute equally to the losses
s24(2) PA 1890: firm must indemnify every partner for payments made in the ordinary
conduct of the business or for anything done in the preservation of the business
Decision making
All decisions will be decided by simple majority s24(8) PA 1890 – ordinary matter
connected with the business – day-to-day
UNANIMOUS CONSENT – fundamental and key - important:
s24(8) PA 1890: changing the nature of the business
s24(7) PA 1890: introducing a new partner
ss24 & 19 PA 1890: changing the terms of the Partnership
Retirement: s26(5) PA 1890 – any Partner can retire
Time devoted & interest on capital
s24(5) P may take part in management of P business = no obligation to
s24(4) do not get right to interest on capital
s24(3) if Ps invest beyond capital, they are entitled to interest at 5% = essentially a loan
Duration and retirement
s19 PA 1890: The Ps must negotiate & agree the terms of the agreement – if they don’t the
PA 1890 will determine their rights and duties
s26 & s32 PA 1890 can terminate at any time on notice – Partnership at Will: will cease to
exist
If one party gives notice – it will result in dissolution of the whole – any party will have the
authority to wind-up the firms affairs– s39 & s44 PA 1890:
Proceeds will be shared out in the following order s44 PA 1890:
o Creditors
o Partners who have lent money
o Partners’ capital entitlement to be paid
o Any surplus will be shared between the parties
Retirement: unless P’ship for fixed term – P can end at any time, by giving notice of his
intention to do so to all other partners – s26(1) PA 1890
o Where P’ship constituted by deed – a notice in writing, signed by the P giving it =
sufficient
Expulsion
, s25 no majority can expel a partner unless power to do so has been conferred by agreement of
every partner – so even the partner due to be expelled must agree to doing so – which is
unlikely
Death/Bankruptcy
Automatically terminates the P’ship – s33 PA 1890
PRs of the deceased/trustee in bankruptcy can collect for his estate the amount former P
entitled for his share
Outcome 3: Identify and explain key provisions included in a written partnership agreement
Likely to contain a provision which excludes/varies:
o The indefinite duration of the partnership and factors that result in automatic dissolution
Likely to include an option to purchase the leaving partner’s share
o The way profits are shared, to represent the amount of time put into the business and
the amount of capital invested
Outcome 4: Recognise the professional conduct implications of advising more than one partner of the
terms of a draft partnership agreement
If you had to draft an agreement for all partners:
o Principle 7 SRA Code of Conduct: Act in client’s best interest
para 6.2 – must not act for 2/more client if it conflicts with the duty to act in the
client’s best interests
exception: permitted as long as there’s:
a) a substantially common interest
b) parties competing for the same objective
Code of Conduct for Sols, para 3.2 provide client with competent
Code of Conduct for Firms, para 4.2 service
Advisable for all parties to get independent legal advice
Outcome 5: Advise on whether a former partner will remain liable for partnership debts
s9 PA 1890 Ps are jointly and severally liable
Existing debts – every Partner is jointly liable even after they leave s17(2) PA 1890
The Firm will be liable for debts after the Partner leaves
o However, the firm will not be liable if P acted outside of their powers/authority
o OBJECTIVE TEST: transaction must relate to the type of business the firm is engaged.
Transaction is one which the P in such a firm would usually be expected to have
authority.
o SUBJECTIVE TEST: The other party did not have actual authority to act – did not
know P did not have actual authority. The other party deals with a person he
knows/believes to be a partner.
o s6 PA 1890: the firm will be liable for debts when P had actual/ostensible authority
to incur debts. When P acts as agent for P’ship with authority.
o P has no authority firm not liable but the contracting P is personally liable.
Debts incurred after the partner has left the partnership:
o The P can still be held legally liable for debts incurred after they have left the P’ship in
one of two ways:
1. Liability for holding out as a partner – s14 PA 1890 where 3rd party believes P is
still working for the business and conducts business on that basis. eg suggests
orally/by another person – with Ps knowledge or in writing and this is relied upon
by the 3rd party – can be held liable for debts
P can ensure that his name is removed from all documents, letter heads,
signs etc
2. Liability for failing to give notice:
a. Does 3rd party know X is a P when they leave? If no, does not need to
notify
b. If yes, did 3rd party deal w/firm before X left?
i. If no, X must give notice to 3rd party via London Gazette
ii. If yes, X must give 3rd party actual notice
, NB: to avoid liability, P can use novation agreement to pass on debts & liabilities to incoming P
s17(3) PA 1890
Should ensure name removed from all stationary, letter heads, official documents, websites,
signs, etc.
Workshop 2: Separate Legal Personality
Outcome 1: Describe the nature of separate legal personality and limited liability, identify and apply
relevant legal principles
Separate legal personality:
o Salomon v Salomon: case establishes SLP
o The co, is treated as a legal person – separate legal entity – in its own right
o Separate legal identify to its owners
o Can enter into contracts, own property, borrow money, sue/be sued etc.
o Requires the formalities of incorporation
Limited liability:
o The members (shareholders) of a limited co. have limited liability
o The members’ liability is limited to the nominal value of the shares they own. If they
have paid the value of their shares in full, they have no liability – but if not, they are
only liable for the amount of the unpaid shares
o The above is determined by s74 Insolvency Act 1986
Outcome 2: Identify the principal reasons for companies to operate within groups of companies, and
explain the relationship between groups of companies
Definitions:
o Parent co. – the co. that owns another co. They own shares in the subsidiary co.
o Subsidiary: a co. owned by a parent co. The parent co. is the SH
Why do parent companies have subsidiaries?
o For the purpose of limited liability, to ringfence the risk of moving into another area of
business. IF the subsidiary company goes insolvent, the parent co. is not liable for its
debts.
Side-stepping SLP
o Adams v Cape Industries plc: 3 arguments made:
1. Agency argument: Parent co. has an element of control over subsidiary – so
the sub would be acting as the parent co.’s agent/ Held not trying to ind parent
co or contract on behalf – cannot imply agency
2. Single economic unit argument: Corporate structure = one economic unit –
No, as per Bank of Tokyo – SLP – accounts prepared together but not concerned
with economic, just the law.
3. Corporate veil: Using corporate veil to evade any liabilities/debts – court not
prepared to pierce the corporate veil – subsidiaries were set up to manage future
risk.
Corporate veil: incorporating co. establishes a veil/barrier between the owners of the co., -
the SH on the one hand and the co. on the other
o Only in exceptional circumstances will the law ‘pierce’, ‘lift’ or ‘look behind; the veil:
when the co. is used to carry out fraud – Re Darby
to avoid existing obligations – Guilford Motors v Horne
o Result = account can be taken on SH in deciding co.’s rights and obligations or the SH
themselves may be liable for the co.’s acts.
Prest v Petrodel Resources Limited & Others:
a) concealment principle: where principle is invoked at all because court merely looks
behind a corporate “façade” to discover what facts the corporate structure is concealing
b) evasion principle: where principle is invoked in situations where there’s a legal right
against the person in control of a co. (such right existing independent of co’s
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