ACCA F4 - Corp and Business Law (ENG)

Part D The formation and constitution of business organisations  11: Partnerships 175

Chapter Roundup

 In a sole tradership, there is no legal distinction between the individual and the business.

 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.

 Partnerships can be formed very informally, but there may be complex formalities to ensure clarity.

 Partnerships may be terminated by passing of time, termination of the underlying venture, death or
bankruptcy of a partner, illegality, notice, agreement or by order of the court.

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

 Partners are jointly liable for all partnership debts that result from contracts that the partners have made
which bind the firm.

 A limited liability partnership combines the features of a traditional partnership with the limited liability
and creation of a legal personality more usually associated with limited companies.

Quick Quiz

1 Which one of the following statements about traditional (unlimited) partnerships is incorrect?

A In England a partnership has no existence distinct from the partners.

B A partnership must have a written partnership agreement.

C A partnership is subject to the Partnership Act.

D Each partner is an agent of the firm.

2 An LLP dissolves when a member leaves.

True

False^

3 Which one of the following statements about the liability of a new partner in a partnership is correct?

A New partners automatically assume liability for existing partnership debts when they join the firm

and for new debts incurred after they join

B New partners are only liable for partnership debts that they personally authorise

C New partners are not liable for existing partnership debts when they join but are liable for new

partnership debts incurred after they join

D New partners become liable for new partnership debts when they meet the creditors personally

4 It is the LLP itself, rather than the partners personally, that enjoys the benefit of limited liability.

True^

False^

5 There is no legal requirement for an LLP to be audited.

True^

False