What advice would you give someone who is in the process of forming a partnership with another person and who wishes to know firstly whether a written agreement is required, and secondly whether they will liable on contracts entered into by the partner.
This essay will assess whether a written agreement is required in the process of forming a partnership, and whether they will be liable on contracts entered into by the partner.
Usually, there are three formation and constitution of business that consist by sole trader, partnership and companies. Under the case that someone who is in the process of forming a partnership with another person, which apply to the business formation of partnership that 2 or more individuals in business. As can be known from ‘Business Law’, partnership is a contractual relationship. The partners make a contract with each other and, as regards their relationship with each other; partners are generally free to agree whatever terms they wish. ‘A partnership is the relation which subsists between persons carrying on a business in common with a view of profit’-s.1 PA 1890. The written partnership agreement is usual, though it is not essential, which means the partners might or might not enter into a written partnership agreement. As from the question that someone who is in the process of forming a partnership with another person, if the partnership agreement is signed by partners then this will govern the partners’ relationship with each other. If there is no written partnership agreement, or if the agreement made does not cover the situation in question, then the 9 terms implied rules will be applied.
1. Right to share equally in capital and profits-s.24(1), which means all partners are entitled to share equally in the firm’s capital and profits and all must contribute equally to losses of capital;
2. The right to an indemnity-s.24 (2). If a partnership incurs any expense in the ordinary conduct of the firm’s business, the firm must indemnify the partner;
3. Right to interest on loans made to the partnership-s.24(3), a partner making, for the purposes of the partnership, any actual payment or advance beyond the amount of capital which he has agreed to subscribe, in entitled to interest at the rate of 5% annum from the date of the payment or advance;
4. No right to interest on capital contribution-s.24(4), a partner is not entitled, before the ascertainment of profits, to interest on the capital subscribed by him;
5. Right to take part in the management of the business-s.24(5), every partner may take part in the management of the firm;
6. No right to remuneration-s.24(6), no partner shall be entitled to remuneration for acting in the partnership business;
7. No admission to partnership without consent-s.24(7), no person may be introduced as a partner without the consent of all existing partners;
8. Majority decision in ordinary business matters-s.24(8), any difference arising as to ordinary matters connected with the partnership business may be decide by a majority of the partners, but no change ma be made in the nature of the partnership business without the consent of all existing partners;
9. Partnership books to be kept at a place of business-s.24 (9), the partnership books are to be kept at the place of business of the partnership (or the principal place, if there is more than one), and every partner may, when he thinks fit, have access to and inspect and copy any of them.
Although there is no need to sign a formal partnership agreement, the vast majority of partnerships do draw up such an agreement. The partnership is based on a contractual agreement. If there is no written partnership agreement, then it may be difficult to state whether there is a partnership.
The unlimited liability of the partners and the power of partner to act as agents of their fellow partners are the two most important characteristics of a partnership. The unlimited liability means the