BUSINESS LAW AND PRACTICE (KNOWLEDGE)
Unit 1
Guide
Partnership
Context
Business lawyers can be called upon to advise on any area of business activity, and it
takes only a moment’s glance at the business pages of any newspaper to see how
wide an area that is. Central to the practice of a business lawyer are matters related to
the form of the business organisation itself. The first type of business organisation that
you will consider in Business Law and Practice is a partnership.
Partnerships are a common business medium. There is no formality required to set
up a partnership: partnerships are formed by two or more individuals running a
business together, whether or not the terms of that arrangement are formalised and
whether or not the partners are aware that they have created a partnership. This Unit
considers how a partnership comes into existence and how to ascertain whether two
or more people are carrying on business as a partnership.
Assuming that a partnership does exist, it is essentially a business relationship based
upon a contract between the partners involved. In practice, you may have to advise
clients who would like to set up a partnership and who instruct you to draw up an
agreement which suits their needs. Alternatively, your clients may either not be aware
that they are in partnership or they may be aware that they are in partnership but they
may not have agreed terms. In these cases, the terms which govern the partnership
may be implied by their conduct in running the business and/or by the Partnership Act
1890, which provides a default agreement for the parties when they have not agreed
terms. You will often need to advise a client that a written agreement should be drawn
up and you will need to provide advice on what the terms of that agreement should be.
In particular, you will need to advise what terms to include to override those default
provisions of the Partnership Act 1890 which your client does not want to include.
Lastly, you will consider liability for partnership debts. Partners are jointly and severally
liable for the debts of a partnership. But what happens when a partner leaves the
partnership? You will consider the extent to which partners who leave the partnership
remain liable for partnership debts and the extent to which they can protect themselves
from liability once they have left the partnership.
This Unit concentrates on general partnerships, governed by the Partnership Act 1890.
In Unit 16, you will cover limited liability partnerships and limited partnerships.
2122_blp_ws01_ce01_guide 1 © The University of Law Limited
,Outcomes
By the end of this Unit you should be able to:
1. Recognise and advise on the existence of a partnership, and the terms that
regulate the running of the partnership business.
2. Advise on key provisions of the Partnership Act 1890, especially in connection
with the existence and duration of a partnership, profit-sharing, decision-making,
retirement, expulsion and dissolution.
3. Identify and explain key provisions typically included in a written partnership
agreement, including those necessary to exclude or vary the terms otherwise
implied by the Partnership Act 1890.
4. Recognise the professional conduct implications of advising more than one
partner on the terms of a draft partnership agreement.
5. Advise on whether a former partner will remain liable for partnership debts.
Unit Workshop Tasks
In the Unit Workshop, you will:
1. Analyse whether three businesses are carrying on business in partnership.
2. Analyse a draft partnership agreement to determine, with reference to the
Partnership Act 1890, the reasons for the inclusion of specific clauses and their
effect.
3. Consider the circumstances in which former partners remain liable for
partnership debts and how they can minimise the risk of being held liable.
Preparation
Please note that there is more preparation for this Unit Workshop than for later
Unit Workshops. This is because you need to gain a solid foundation in
business law before you build on this in later Unit Workshops. Please bear this
in mind when planning your preparation.
To prepare for this Unit Workshop you should:
1. Read Chapter 1, paragraphs 1.1 – 1.9 and Chapters 13, 14, 15, 16 and 17 of
Business Law and Practice.
2. Read s1, 2, 9, 14, 17, 19, 24-26, 28-30, 32, 33, 35, 36, 39 and 44 Partnership Act
1890.
3. View the recorded lecture ‘Business Law and Practice Lecture 1: Introduction’ via
the Lecture Recordings page on Elite.
4. Watch the Tutorial ‘Partnership Formation, Agreements and Dissolution’.
5. Complete Test and Feedback - Unit 1 (Preparation).
6. Carry out Preparatory Tasks 1 and 2.
© The University of Law Limited 2 2122_blp_ws01_ce01_guide
,Materials required for the Unit Workshop
1. This Guide.
2. Your answer to Preparatory Task 1 and the agreement and grid from Preparatory
Task 2.
3. Your Business Law and Practice textbook.
4. Your Business Legislation Handbook.
Consolidation
It is important that you consolidate your learning. In particular, you must:
1. Complete Test and Feedback – Unit 1 (Consolidation).
2. Review your Unit Workshop Tasks.
2122_blp_ws01_ce01_guide 3 © The University of Law Limited
,BUSINESS LAW AND PRACTICE (KNOWLEDGE)
Unit 1
Preparatory Task 1
Your supervisor, Phil Rice, has asked you to assist him in advising Mayson Limited
(“Mayson”).
Mayson is working with Donaldson plc (“Donaldson”) and Enrichment Limited
(“Enrichment”) on a project to develop speech recognition technology. No agreement
was ever signed in relation to the project but the parties have nevertheless been
working together on the early developmental stages of the project. The parties are
working together on the following terms:
a) The companies have agreed to combine their know-how and existing
technology to develop, produce and distribute speech recognition technology.
b) Each company has its own area of responsibility in respect of the development
of the products. Mayson made a capital contribution at the outset and has
contributed know-how in the early stages of development, although its day-to-
day involvement and particular expertise will only be required in the later phases
of development.
c) Representatives from each company meet on a quarterly basis to discuss
progress and to take decisions affecting future development strategy.
d) The parties propose to share any profits of the new venture which may arise as
a result of the production and sale of the products, or the sale/licensing of any
intellectual property that may arise from the development stage of the project,
in proportion to their initial capital contributions.
Mayson has sought Phil’s advice on drafting an agreement to formalise the
arrangement between Mayson, Donaldson and Enrichment. Phil is concerned that
while Mayson is of the view that this is a commercial joint venture, it may have
inadvertently created a partnership.
Do you agree with Phil? Please explain your reasons.
A partnership will exist if the definition in section 1 of the Partnership Act 1890 is
satisfied. Under s1 (1), partnership is the relation which subsists between persons
carrying on a business in common with a view of profit.
Two or more persons – There are three persons involved.
Business in common - The companies have agreed to combine their know-how and
existing technology to develop, produce and distribute speech recognition technology.
and technology, which points to a business in common.
Representatives from each company meet on a quarterly basis to discuss progress
and to take decisions affecting future development strategy points to a business in
common.
View of profit - Sharing any profits of the new venture which may arise as a result of
the production and sale of the products, based on capital contributions.
© The University of Law Limited 4 2122_blp_ws01_ce01_guide
,Is Mason a partner?
(3) The receipt by a person of a share of the profits of a business is primâ
facie evidence that he is a partner in the business, but the receipt of such a share, or
of a payment contingent on or varying with the profits of a business, does not of itself
make him a partner in the business – He has not received profits yet.
p.260 fundamental characteristics of partners
Making decisions which affect the business - Representatives from each company
meet on a quarterly basis to discuss progress and to take decisions affecting future
development strategy.
Share the profits of the business - Sharing any profits of the new venture which may
arise because of the production and sale of the products, based on capital
contributions.
The right to examine the accounts of the business – More information is needed.
The right to insist on openness and honesty from fellow partners – Inferred from
the quarterly meetings.
The right to veto the introduction of a new partner - More information is needed.
The responsibility for sharing any losses made by the business - More information
is needed.
It is likely that there is a partnership, but more information is needed.
2122_blp_ws01_ce01_guide 5 © The University of Law Limited
,BUSINESS LAW AND PRACTICE (KNOWLEDGE)
Unit 1
Preparatory Task 2
Introduction
When a client seeks advice on setting up a business to be run in partnership, a key
part of your advice will be that the client should consider a written agreement to set out
expressly the terms on which the business will be run. Similarly, when advising a client
in an existing partnership which is operating without a written agreement, you may
recommend that such an agreement be drawn up.
There is no requirement for a written agreement, so you must be able to explain to the
client why such an agreement is nevertheless advisable. You must also have the
knowledge and the skills necessary either to prepare the agreement from scratch, if
required, or to amend or adapt a draft or precedent partnership agreement. To do this,
you must be familiar with the Partnership Act 1890 (“the Act”) and its effect. In
particular, you must have an understanding of the terms that, unless otherwise agreed,
will be implied by the Act.
Background
In 2011, Jason Anderson, Gupta Singh, Mary Stewart and William Ball (“the Partners”)
formed a partnership to run a printing business known as Printing Pleasures. The
purpose of the business was to design and print a wide range of materials, including
business cards, letterheads, flyers, leaflets, posters, invitations and postcards, for
personal and business customers.
You are a trainee with ULaws LLP. Your firm was instructed by Jason Anderson to
prepare the Printing Pleasures partnership agreement (“Agreement”) on behalf of the
Partners. Each of the Partners obtained independent legal advice on the terms of the
Agreement. They were also advised by your firm that, in the event of a dispute between
them, it may be necessary for them to be represented separately. The Partners signed
the Agreement on 1 September 2011.
The issue
You have been asked to read the terms of the Agreement, to help to prepare you to
draft a partnership agreement for a new client. Please read the Agreement so that you
are aware of the types of clause such agreements contain. Focus on the clauses set
out below:
• 2.1 and 2.3
• 7.2, 7.4 and 7.5
• 8
• 10.1
• 12
© The University of Law Limited 6 2122_blp_ws01_ce01_guide
,• 17
• 18
• 19
Then complete the grid overleaf. In the first column, state what the position is under
the Act. You will be able to complete this column from the reading you were asked to
carry out as part of the preparation for this Unit Workshop.
In the second column:
• State what the position is under the Agreement; and
• If the Agreement is different from the Act, state what you think the commercial
reasons were for varying the position under the Act.
2122_blp_ws01_ce01_guide 7 © The University of Law Limited
, Partnership Act Partnership Agreement
What is the 26. 2. COMMENCEMENT AND
duration of the Retirement from partnership DURATION
partnership? at will (1) Where no fixed term
has been agreed upon for the 2.1 The Partnership shall begin on 1
duration of the partnership, September 2011 and the terms of
any partner may determine this Agreement shall from that date
the partnership at any time on govern the affairs and operation of
giving notice of his intention the Partnership.
so to do to all the other
partners. [N.B. This is specific to the
partnership and is necessary for
practical reasons.]
2.2 The Partnership shall carry on the
Business and / or carry on such other
or additional trade or business as it
shall from time to time decide in
accordance with clause 10.
2.3 The Partnership shall continue for as
long as two of the Partners are still
living or until wound up in
accordance with this Agreement.
What share of 24 (1) 8. INCOME
profits is a All the partners are entitled to
partner entitled share equally in the capital 10.1 Net Profit (if any) shall be allocated to
to in relation to: and profits of the business the Partners in the following
- Income? and must contribute equally percentages:
- Capital? towards the losses whether
of capital or otherwise [N.B. This is different to the ratio of
sustained by the firm. capital contributions? See s7 of the
Agreement.]
Jason Anderson 25%
Gupta Singh 25%
Mary Stewart 25%
William Ball 25%
8.2 All income losses of the Partnership
shall be borne by the Partners in the
proportions set out in clause 8.1.
© The University of Law Limited 8 2122_blp_ws01_ce01_guide
,How are 19. 12. DECISION-MAKING, AUTHORITY AND
decisions made Variation by consent of terms RESTRICTIONS
in relation to: of partnership
The mutual rights and duties 10.1 The following matters shall require
- Changing of partners, whether the unanimous consent of the
the nature ascertained by agreement or Partners:
of the defined by this Act, may be
partnership; varied by the consent of all [N.B. Sets out other decisions that
the partners, and such would require unanimous consent.]
- A new consent may be either
partner express or inferred from a 10.1.1 except in the usual course of
joining; course of dealing. the Business the borrowing or
lending of any sum;
- Changing 24 (8)
the terms of Any difference arising as to 10.1.2 the giving of any guarantee in
the ordinary matters connected connection with the
partnership; with the partnership business Partnership;
and may be decided by a majority
of the partners, but no 10.1.3 the opening of any new
- Other day- change may be made in the Partnership business
to-day nature of the partnership premises;
decisions? business without the consent
of all existing partners. 10.1.4 the sale of any Partnership
premises;
10.1.5 any increase of Partnership
capital;
10.1.6 any change in the nature of
the Business;
10.1.7 the introduction into the
Partnership of a new partner;
10.1.8 the release or discharge of
any debt without receiving the
full amount owed to the
Partnership;
10.1.9 any change to the terms of
this Agreement;
10.1.10 determining the
permitted amount of Drawings.
2122_blp_ws01_ce01_guide 9 © The University of Law Limited
, How much time Cannot find a provision about 12. TIME DEVOTED TO BUSINESS
must be devoted how much time must be
to the business? devoted to the business. [N.B. Added to ensure that Partners
devote time to the business and need
for medical certification if ill.]
Each of the Partners shall devote the
whole of his time and attention to the
Business and use his best skills and
endeavours to carry it on for the
benefit of the Partnership EXCEPT
THAT:
(a) a Partner may be absent due
to ill-health or injury. If the
other Partners so require,
such ill-health or injury shall
be certified by a medical
practitioner;
(b) if a Partner is pregnant, she
shall be entitled to maternity
leave not exceeding six
consecutive months.
© The University of Law Limited 10 2122_blp_ws01_ce01_guide
