ACCA F4 - Corp and Business Law (ENG)

168 11: Partnerships  Part D The formation and constitution of business organisations

Study guide

Intellectual level

D The formation and constitution of business organisations^

2 Partnerships

(a) Demonstrate a knowledge of the legislation governing the partnership, both

unlimited and limited

1

(b) Discuss the formation of a partnership 2

(c) Explain the authority of partners in relation to partnership activity 2

(d) Analyse the liability of various partners for partnership debts 2

(e) Explain the termination of a partnership and partners’ subsequent rights and

liabilities

2

Exam guide

Partnership is highly suited to scenario questions where you may be required to identify who is liable for

partnership debts.

1 Partnerships

Partnership is defined as 'the relation which subsists between persons carrying on a business in common

with a view of profit'. A partnership is not a separate legal person distinct from its members, it is merely a

'relation' between persons. Each partner (there must be at least two) is personally liable for all the debts

of the firm.

Partnership is a common form of business association. It is flexible, because it can either be a formal or

informal arrangement, so can be used for large organisations or a small husband and wife operation.

Partnership is normal practice in the professions as most professions prohibit their members from

carrying on practice through limited companies, though some professions permit their members to trade

as limited liability partnerships which have many of the characteristics of companies. Business people are

not so restricted and generally prefer to trade through a limited company for the advantages this can

bring.

Your syllabus requires you to demonstrate knowledge of the legislation governing both limited and

unlimited liability partnerships. You should therefore make careful note of the rules regarding the

Partnership Act 1890, the Limited Partnership Act 1907 and the Limited Liability Partnership Act 2000.

1.1 Definition of partnership

Partnership is the relation which subsists between persons carrying on a business in common with a view

of profit.

We shall look at some points raised by this definition now.

1.1.1 The relation which subsists between persons

'Person' includes a corporation such as a registered company as well as an individual living person.

There must be at least two partners. If, therefore, two people are in partnership, one dies and the survivor

carries on the business, that person is a sole trader. There is no longer a partnership.

Key term

Exam focus

point

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