BUSINESS LAW AND PRACTICE MCQ’S
Unit 1 – Partnership:
Jake and Michael decide to import motorcycles from Europe to undercut expensive official dealers in the UK. Michael, who
can speak French, goes to France and orders the bikes. Jake pays the French seller directly. Jake gives Michael 10% of the
difference between the 'official' UK price and the price Jake actually pays. Jake then sells the bikes in his shop. Indicate
whether the following statement is true or false: Jake and Michael are in partnership together.
A. True
B. False
Response Feedback:
- Consider if Michael and Jake's actions satisfy the definition of a partnership under s.1 Partnership Act 1890. Michael
is acting as Jake's agent: he does not accept any financial risk and he does not get a share of the profits.
Jamie and Malcolm went into partnership earlier this year. Jamie provided 25% and Malcolm 75% of the capital needed to
buy the partnership assets. Jamie works full-time in the business, but it was agreed that Malcolm would not spend any
particular number of hours working for the business and simply provide consultancy advice as and when requested by
Jamie.
There is no written agreement + nothing else has been agreed. How will Jamie + Malcolm share the profits?
Which one of the following is CORRECT?
A. Jamie will be entitled to 25% of the profits and Malcolm will be entitled to 75%.
B. Jamie and Malcolm will each be entitled to 50% of the profits.
C. Under the Partnership Act 1890, Jamie is entitled to a reasonable salary, and Jamie and Malcolm will split the
remainder of the profits between them equally.
D. Because Malcolm is under no obligation to work for the business, he will not be entitled to a salary but James will be
entitled to a reasonable sum for the work he carries out. Malcolm and Jamie will then split the remainder of the
profits between them, Malcolm receiving 75% and Jamie 25%.
Response Feedback:
- Have a look at s.24(1) Partnership Act 1890: because there is no agreement to the contrary, both partners are
entitled to half of the income profits.
Muriel, Molly and Marilyn have been in partnership since 1990. They all work full-time for the business. They share profits
equally + have no relevant express agreement between them. Which of the following is CORRECT?
A. If Molly leaves the business, she could be prevented from setting up a competing business.
B. Each partner is entitled to receive a salary in addition to her share of the profits.
C. Muriel and Molly together could expel Marilyn, even if Marilyn objects.
D. Any of the 3 partners could dissolve the partnership at any time without giving a reason.
Response Feedback:
- Have a look at ss.24(6), 25, 26 and 30 Partnership Act 1890:
o Section 26 Partnership Act 1890 provides that a partnership "at will" may be dissolved by any partner giving
notice to the others.
o Section 30 Partnership Act 1890 only provides for restrictions on competition whilst Molly is still a partner.
o Section 24(6) Partnership Act 1890 provides that a partner is not entitled to a salary.
o Section 25 Partnership Act 1890 effectively provides that partners can only be expelled by unanimous
consent - including the consent of the partner to be expelled.
John, Andrew + Robert have been in partnership together for 3 years and they have no partnership agreement. John has
recently been declared bankrupt. Indicate whether the following statement is true or false:
Andrew + Robert can insist on continuing the business in partnership without John, who will have to retire.
A. True
B. False
Response Feedback:
- Read s.33 Partnership Act 1890 (subject to contrary agreement, bankruptcy automatically dissolves the partnership),
and note also that there is no right to retire, as such, contained in the Partnership Act 1890.
Two years ago Adam, Rebecca and Kamal set up a partnership. Their agreement provides for income and capital profits to
be shared in the same proportions as their capital contributions which were: Adam - £10,000, Rebecca - £10,000 and Kamal
- £20,000. The business has just ceased to trade, having a total realisable value of £24,000 after allowing for payment of all
claims on the partnership including the partners' capital contribution. How much should Kamal receive from this £24,000?
Which one of the following is CORRECT?
A. £12,000
, B. £8,000
C. £20,000
D. £6,000
Response Feedback:
- Think about how these partners have agreed to share profits, i.e., in the same proportions as their capital
contributions. Capital was contributed in the ratio 1:1:2 and all profits are to be split in these proportions so the
profits will be split £6,000 to Adam, £6,000 to Rebecca and £12,000 to Kamal.
Liam and Daniel have been partners since 1990 in a garage trading as L & D Vehicle Repairs. They have no partnership
agreement. They have always purchased their stock from Car Parts (Garages) Co. Liam has just learnt that Daniel has been
a sleeping partner in Car Parts (Garages) Co for the last year. When challenged, Daniel replied that Car Parts (Garages) Co
wrote to L & D Vehicle Repairs suggesting a merger of the 2 businesses but, as Liam always said it was good to keep their
business small, Daniel thought that Liam would not agree to the merger; instead, he negotiated his personal involvement
with Car Parts (Garages) Co.
Which one of the following is CORRECT?
A. Liam is entitled to claim from Daniel an account for his share of the profits of Car Parts (Garages) Co on the basis that
Daniel is involved in a competing business without Liam's knowledge and consent
B. Liam is entitled to expel Daniel from the partnership and to force Daniel to sell to him his share of the business
C. On the basis that the opportunity to invest in Car Parts (Garages) Co was initially offered to L & D Vehicle Repairs,
Liam may succeed in claiming that Daniel should now account to Liam for any profit he has received from his
involvement with the firm.
D. If Daniel now retires as a partner in L&D Vehicle Repairs, Liam will still continue as a partner in the firm.
Response Feedback:
- In the absence of consent from Liam, Daniel is likely to be liable to account to Liam under s.29 PA 1890 for the benefit
he has received.
- On the bare facts, there is no clear evidence that Car Parts (Garages) Co is a competing business. If it is, then Daniel
has been engaged in a competing business without Liam's consent under s.30 PA 1890 and he will be liable to
account for all profits made by him in that business. Further information is needed.
- Liam has no power to expel Daniel (s.25 PA). If Daniel retires from the firm, Liam acting alone cannot continue as a
partner because the definition of partnership will no longer be fulfilled (s.1 PA 1890).
Nicola has helped her daughters Antonia and Chelsea establish a beauty therapist business by providing the necessary
finance and by visiting the salon regularly to provide business advice. Antonia and Chelsea had a formal partnership
agreement drawn up between them. Nicola does not want to be a partner in the firm as she runs her own driving school
business. However, as Nicola is often seen at the salon, Antonia has occasionally told product suppliers that Nicola is a
partner in the firm.
Nicola wants to know if she could be liable for a debt of the firm to a supplier to whom Antonia had represented that
Nicola was a partner.
Which one of the following is INCORRECT?
A. Nicola could possibly be liable, if Nicola knew of and allowed the representations made by Antonia
B. Nicola could possibly be liable, if the contract with the supplier was made after the representation
C. Nicola could possibly be liable, if the supplier thought Nicola was a partner
D. Nicola could not be liable in any circumstances
Response Feedback:
- Section 14(1) PA 1890 provides: "Every one who represents himself, or who knowingly suffers himself to be
represented, as a partner, is liable as a partner.....". Nicola could therefore be liable for the debts under s.14(1) if she
knew of the representations being made, on the basis that she "knowingly suffers" herself to be represented as a
partner in the firm ("holding out").
Oliver, Henry and Michelle are in partnership supplying office furniture. On 26 February the firm enters into a contract to
supply desks to a customer. On 4 March Henry retires from the partnership and the other two agree to indemnify him
against any liability on the contract. On 25 March the partnership defaults on the contract. On 28 March Isobel joins the
firm as a partner.
Who is liable for breach of contract?
Which one of the following is CORRECT?
A. Only Oliver, Michelle and Isobel are liable for the breach of contract
B. Oliver, Henry, Michelle and Isobel are liable for the breach of contract
C. Only Oliver and Michelle are liable for the breach of contract
D. Only Oliver, Henry and Michelle are liable for the breach of contract
Response Feedback:
