ACCA F4 - Corp and Business Law (ENG)

Part D The formation and constitution of business organisations  11: Partnerships 171

3.1 Events causing termination

The Partnership Act 1890 states that partnership is terminated in the following instances.

 Passing of time, if the partnership was entered into for a fixed term

 Termination of the venture, if entered into for a single venture

 The death or bankruptcy of a partner (partnership agreement may vary this)

 Subsequent illegality

 Notice given by a partner if it is a partnership of indefinite duration

 Order of the court granted to a partner

 Agreement between the partners

In the event of the termination of a partnership, the partnership's assets are realised and the proceeds

applied in this order.

 Paying off external debts

 Repaying to the partners any loans or advances

 Repaying the partners' capital contribution

 Anything left over is then repaid to the partners in the profit sharing ratio.

The partnership agreement can exclude some of these provisions and can avoid dissolution in the

following circumstances.

 Death of a partner

 Bankruptcy of a partner

It is wise to make such provisions to give stability to the partnership.

4 Authority of partners in an unlimited liability

partnership

The authority of partners to bind each other in contract is based on the principles of agency.

In simple terms, a partner is the agent of the partnership and their co-partners. This means that some of

their acts bind the other partners, either because they have, or because they appear to have, authority. The

Partnership Act 1890 defines the authority of a partner to make contracts as follows.

Authority of a partner

Every partner is an agent of the firm and their other partners for the purpose of the business of the

partnership, and the acts of every partner who does any act for carrying on the usual way of business if

the kind carried on by the firm of which they are a member bind the firm and their partners, unless the

partner so acting has in fact no authority to act for the firm in the particular matter, and the person with

whom they are dealing either knows that they have no authority, or does not know or believe them to

be a partner.

Where a partner pledges the credit of the firm for a purpose apparently not connected with the firm's

ordinary course of business, the firm is not bound, unless they are in fact specially authorised by the

other partners: but this section does not affect any personal liability incurred by an individual.

If it has been agreed between the partners that any restriction shall be placed on the power of any one or

more of them to bind the firm, no act done in contravention of the agreement is binding on the firm with

respect to persons having notice of the agreement.

The key point to note about authority of partners is that, other than when the partner has actual authority,

the authority often depends on the perception of the third party. If the third party genuinely believes that

the partner has authority, the partner is likely to bind the firm.

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