COPYRIGHT 2010 BY Mohammad Faizan Farooq

FFQA 1

LAW OF PARTNERSHIP

Prepared by: Mohammad Faizan Farooq Qadri Attari ACCA (Finalist)

http://www.ffqacca.co.cc

Contact: faizanacca@yahoo.com 0334-3440590

COPYRIGHT 2010 BY Mohammad Faizan Farooq

FFQA 2

If someone found using my material by naming it as creator of it or tried amending or altering will be sued according to the Copyright Law of Pakistan & DMCA

If someone found using my material by naming it as creator of it or tried amending or altering will be sued according to the Copyright Law of Pakistan & DMCA

Prepared by: Mohammad Faizan Farooq Qadri Attari ACCA (Finalist)

http://www.ffqacca.co.cc

Contact: faizanacca@yahoo.com 0334-3440590

COPYRIGHT 2010 BY Mohammad Faizan Farooq

FFQA 3

LAW OF PARTNERSHIP
Section 1 of Partnership Act 1890 define Partnership as follows; Partnership is the relation which subsists between persons carrying on a business in common with a view of profit. Under Section 5 of the Partnership Act 1980 Every Partner is an agent of the firm and his other partners for the purpose of the business of the partnership and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member bind the firm and his partners

DUTIES OF PARTNERS
The fiduciary nature of the partnership relationship imports the usual duties that derive from such a relationship, which can be summed up under the general heading of a duty to act in good faith. In addition to these general fiduciary duties, sections 28 to 30 of the Partnership Act 1890 lay down the following specific duties:

1.THE DUTY OF DISCLOSURE

Section 28 provides that partners must render true accounts and full information in relation to all things affecting the partnership to the other partners or their legal representatives. Law v Law one partner accepted an offer from the other to buy his share of the firm. He later discovered that certain partnership assets had not been disclosed to him and sought to have the contract set aside. The court decided that, as the purchasing partner had breached the duty of disclosure, the agreement could have been set aside. In actual fact, the parties had come to an arrangement, so it was not necessary for such an order to be granted.

2.THE DUTY TO ACCOUNT

Section 29 of the Partnership Act 1980 provides that partners must account to the firm for any benefit obtained, without consent, from any transaction concerning the partnership; its property, including information derived from membership of the partnership; its name; or its business connection. As with fiduciary duties generally, such profit is only open to challenge where it is undisclosed. Full disclosure is necessary and sufficient to justify the making of an individual profit from a partnership position. Bentley v Craven Craven was in partnership with the plaintiff in a sugar refinery business. He bought sugar on his own account and later sold it to the partnership at a profit, without declaring his interest to the other partners. It was held that the partnership was entitled to recover the profit from the defendant.

Prepared by: Mohammad Faizan Farooq Qadri Attari ACCA (Finalist)

http://www.ffqacca.co.cc

Contact: faizanacca@yahoo.com 0334-3440590

COPYRIGHT 2010 BY Mohammad Faizan Farooq

FFQA 4

3.THE DUTY NOT TO COMPETE

Section 30 provides that, where a partner competes with the partnership business, without the consent of the other partners, then that person shall be liable to account to the partnership for any profits made in the course of that business. Glassington v Thwaites a member of a partnership, which produced a morning paper, was held to account for the profit he made from publishing an evening paper. Once again, it is essential to note that full disclosure is necessary to validate any such profits made in competition with the partnership.

Prepared by: Mohammad Faizan Farooq Qadri Attari ACCA (Finalist)

http://www.ffqacca.co.cc

Contact: faizanacca@yahoo.com 0334-3440590

COPYRIGHT 2010 BY Mohammad Faizan Farooq

FFQA 5

LIABILITIES OF PARTNERS
Section 1 of the Partnership Act 1890 which governs ordinary partnerships
states that partnership is the relationship which subsists between persons carrying on a business in common with a view to profit. Ordinary partnerships do not benefit from any limitation on the liability of the various partners. Consequently the individual members of a partnership are jointly and severally liable for the debts of the partnership to the full extent of their personal wealth. This applies equally to sleeping partners who take no active part in the day to day operation of the partnership business. Outsiders have the choice of taking action against the firm collectively or against the individual partners. Where damages are recovered from one partner only, the other partners are under a duty to contribute equally to the amount paid.

The Limited Partnership Act 1907 allows for the formation of limited
partnerships. For members of a partnership to gain the benefit of limited liability under this legislation, the following rules apply: limited partners are not liable for partnership debts beyond the extent of their capital contribution, but in the ordinary course of events they are not permitted to remove their capital at least one of the partners must retain full, that is, unlimited, liability for the debts of the partnership a partner with limited liability is not permitted to take part in the management of the business enterprise and cannot usually bind the partnership in any transaction. If a partner acts in contravention of this rule they will lose the right to limited liability the partnership must be registered with the Companies Registry. The Limited Liability Partnership Act 2000 provides for a new form of business entity, the limited liability partnership. Although stated to be a partnership, the new form is a corporation, with a distinct legal existence apart from its members. As such it will have the ability to hold property in its own right to sue and be sued in its own name. It will have perpetual succession and consequently alterations in its membership will not have any effect on its existence. Most importantly however, the new legal entity will allow its members to benefit from limited liability in that they will not be liable for more than the amount they have agreed to contribute to its capital. The Limited Liability Partnership Regulations 2001 extend the provisions relating to the insolvency and winding up of registered companies to LLPs. Thus the relevant sections of the Companies Act 1985, the Insolvency Act 1986, the Company Directors Disqualification Act 1986 and the Financial Services and Markets Act 2000 have been appropriately modified to apply to LLPs.

Prepared by: Mohammad Faizan Farooq Qadri Attari ACCA (Finalist)

http://www.ffqacca.co.cc

Contact: faizanacca@yahoo.com 0334-3440590

COPYRIGHT 2010 BY Mohammad Faizan Farooq

FFQA 6

FORMATION OF LLP
To form a Limited Liability Partnership: two or more persons must subscribe to an incorporation document the incorporation document must be delivered to the companies registry a statement of compliance must be completed by a solicitor or subscriber to the incorporation document. The incorporation document must include: the name of the LLP (subject to restrictions) the address of the registered office the names and addresses of those who will be members on incorporation of the LLP the names of at least two designated members, whose duty it is to ensure that the administrative and filing duties of the LLP are complied with. If no such members are designated then all members will be assumed to be designated members.

TERMINATION/DISSOLUTION OF PARTNERSHIP
There are a number of possible reasons for bringing a partnership to an end. It may have been established for a particular purpose and that purpose has been achieved, or one of the partners might wish to retire from the business, or the good relationship between the members, which is essential to the operation of a partnership, may have broken down. In all such cases, the existing partnership is dissolved, although in the second case a new partnership may be established to take over the old business. Reference should be made to the Partnership Act 1890 (PA). Partnerships are created by agreement and they may be brought to an end in the same way. However, subject to any provision to the contrary in the partnership agreement, the PA 1890 provides for the dissolution of a partnership on the following grounds: 1. The expiry of a fixed term or the completion of a specified enterprise It is possible for a partnership to be established for a stated period of time and at the end of that time the partnership will come to an end and the partnership will be dissolved. 2. Alternatively it is possible for the partnership to be established in order to achieve a particular goal and again once that goal has been attained the partnership will come to an end. However, it is possible for the partnership to continue beyond this stated period or the goal if the partners agree. If the partnership does continue after the preset limit, it is known as a partnership at will and it can be ended at any time thereafter at the wish of any of the partners.

Prepared by: Mohammad Faizan Farooq Qadri Attari ACCA (Finalist)

http://www.ffqacca.co.cc

Contact: faizanacca@yahoo.com 0334-3440590

COPYRIGHT 2010 BY Mohammad Faizan Farooq

FFQA 7

Notice
If the partnership is of indefinite duration, then it can be brought to an end by any one of the partners giving notice of an intention to dissolve the partnership.

THE DEATH OR BANKRUPTCY OF ANY PARTNER The ordinary partnership has no

legal personality in its own right but merely exists as the collection of individuals it is apparent that the death of a member will bring about the end of the partnership. (N.B. this of course is not the case with limited partnerships formed under the Limited Liability Partnerships Act 2000 which does provide legal capacity to such partnerships formed under its provisions.) Although the occurrence of either of these events will bring the original partnership to an end, it is usual for partnership agreements to provide for the continuation of the business under the control of the remaining/solvent partners who will constitute a new partnership. The dead partners interest will be valued and paid to his or her personal representative, and the bankrupts interest will be paid to his or her trustee in bankruptcy. Where a partners share becomes subject to a charge Section 23(1) of the PA prevents action against partnership property in relation to any personal debt owed by a partner. s.23(2) allows for the creation of a charge against the partners interest in the property or profits in relation to any judgment debt. Such a situation may well prove unsatisfactory to the other partners and therefore s.33(2) allows for the dissolution of the partnership in such circumstances. It should be noted, however, that dissolution in this instance is not automatic; it is merely open to the other partners to dissolve the partnership.

ILLEGALITY
The occurrence of events making the continuation of the partnership illegal will bring it to an end. An obvious case would be where the continuation of the partnership would result in trading with the enemy R v Kupfer Hudgell, Yeates and Co v Watson . Practising solicitors are legally required to have a practice certificate. However, one of the members of a three-person partnership forgot to renew his practice certificate and thus was not legally entitled to act as a solicitor. It was held that the failure to renew the practice certificate brought the partnership to an end, although a new partnership continued between the other two members of the old partnership.

Prepared by: Mohammad Faizan Farooq Qadri Attari ACCA (Finalist)

http://www.ffqacca.co.cc

Contact: faizanacca@yahoo.com 0334-3440590

COPYRIGHT 2010 BY Mohammad Faizan Farooq

FFQA 8

By Court Order
In addition to the provisions listed above, the court may, mainly by virtue of s.35 of the PA 1890, order the dissolution of thepartnership under the following circumstances: Where a partner becomes a patient under the Mental Health Act 1983. Where a partner suffers some other permanent incapacity. Where a partner engages in activity prejudicial to the business. Such activity may be directly related to the business, such as the misappropriation of funds. Alternatively, it may take place outside the business but operate to its detriment. An example might be a criminal conviction for fraud. Where a partner persistently breaches the partnership agreement. This provision also relates to conduct which makes it unreasonable for the other partners to carry on in business with the party at fault. Where the business can only be carried on at a loss. This provision is a corollary of the very first section of the PA 1890 in which the pursuit of profit is part of the definition of the partnership form. If such profit cannot be achieved, then the partners are entitled to avoid loss by bringing the partnership to an end. Where it is just and equitable to do so. The courts have wide discretion in relation to the implementation of this power. A similar provision operates within company legislation (s.122 Insolvency Act 1986) and the two provisions come together in the cases involving quasi-partnerships o Yenidje Tobacco Co Ltd o Ebrahimi v Westbourne Galleries Ltd

Prepared by: Mohammad Faizan Farooq Qadri Attari ACCA (Finalist)

http://www.ffqacca.co.cc

Contact: faizanacca@yahoo.com 0334-3440590