ACCA Applied Skills · Corporate and Business Law (Global)

Partnerships: formula sheet

Full chapter guide

Key formulas

Partnership definition: Partnership = two or more persons + carrying on a business + in common + with a view to profit; Check each element against the facts. A missing element means there is probably no partnership.
General partnership liability: General partnership: no separate personality; partners have unlimited personal liability; Creditors can usually pursue partners' private assets once firm assets run out.
Limited partnership structure: LP = at least one general partner (unlimited) + at least one limited partner (capped at contribution); A limited partner who takes part in management risks losing limited liability in many systems.
LLP structure: LLP = separate legal person + members with limited liability + partnership-style management; It is created by registration, normally with filing duties.
Partnership v company: Company: separate personality, limited liability, formed by registration. General partnership: neither; This is the most common comparison point in objective questions.
Test for a partnership: Partnership = persons + carrying on a business in common + with a view to profit; No registration or written document is needed. Sharing profit is evidence, not proof.
Default profit and loss sharing: Each partner's share = total ÷ number of partners; Applies whatever the capital contributed, unless the agreement says otherwise.
Default management: Every partner may take part in management; Ordinary matters: majority decides. Changing the nature of the business: all must agree.
Default pay and capital: No salary; no interest on capital; Interest or salary is due only if the agreement provides for it.
Default indemnity: Firm indemnifies a partner for payments and liabilities properly incurred in the ordinary and proper conduct of the business; Personal expenses are not covered.
Default admission and records: New partner admitted only with consent of all existing partners; books kept at the firm's place of business and open to every partner; Expulsion is allowed only if the agreement gives the power.
Partner as agent: Act of partner in ordinary course of firm's business ⇒ firm and co-partners bound; Applies to actual or apparent authority. The business is judged by what is usual for that type of firm.
Actual authority: Actual authority = express (agreement) + implied (conduct, nature of business); Look for limits in the partnership agreement.
Apparent authority: Act usual for the business + third party unaware of limit ⇒ firm bound; Not bound if the third party knew of the lack of authority or did not know he was a partner.
Liability for contracts: Unlimited; joint; Firm assets first in practice, then personal assets of partners.
Liability for wrongs: Unlimited; joint and several for wrongs in ordinary course of business; Creditor may sue any one partner or all of them.
Incoming partner: No liability for debts before joining unless he agrees (novation); Liable for debts after joining.
Outgoing partner: Liable for debts while a partner; liable later to those without notice of leaving; Give notice to the world and actual notice to existing customers.
Limited partnership structure: At least 1 general partner (unlimited liability) + at least 1 limited partner (liability capped at contribution); Both types must exist. A firm with only limited partners cannot be a limited partnership.
Limited partner's protection rule: Limited liability = contribution only, provided no involvement in management; Taking part in management can expose the limited partner to unlimited liability, usually towards those who relied on that conduct.
Registration requirement: Limited partnership or LLP status = registration with the registrar; Failure to register in a limited partnership usually means all partners are treated as general partners.
LLP legal status: LLP = separate legal person + limited liability for members + member participation in management; This combination is the main difference from a limited partnership.
Personal fault rule: Member's own wrongful act or negligence = personal liability of that member; Limited liability protects against the LLP's debts, not against your own tort.
Order of application of assets: 1. Outside creditors → 2. Partners' loans/advances → 3. Partners' capital → 4. Surplus shared in profit ratio; Learn this sequence exactly. Partners' loans rank before capital, which is the most tested point.
Loss on winding up: If assets < liabilities to creditors, the shortfall falls on partners in the loss-sharing ratio; Without agreement, losses are shared in the same ratio as profits, which is equal if the agreement is silent. Partners' liability to creditors is unlimited in a general partnership.
Ways a partnership ends: Expiry of term | Notice (at will) | Death or bankruptcy | Illegality | Court order; In many jurisdictions, death and bankruptcy dissolve the firm by default, unless the agreement provides otherwise.
Court grounds (just and equitable): Incapacity | Misconduct | Persistent breach | Business only at a loss | Breakdown of trust; These are examples. The court looks at whether it is just and equitable to dissolve.

Quick revision

A partnership is a relationship between persons carrying on a business in common with a view to profit.
Sharing profits is a strong indicator of partnership, but not conclusive on its own.
The partnership agreement sets the partners' rights and duties between themselves; it can be written or oral depending on the jurisdiction.
Where the agreement is silent, default rules in the applicable law fill the gaps.
Partners act as agents of the firm and of each other when carrying on its usual business.
A partner can bind the firm where acting within actual or apparent authority.
In a general partnership, partners usually have unlimited personal liability for the firm's debts.
A limited partnership has at least one general partner with unlimited liability and limited partners whose liability is capped.
A limited partner who takes part in management risks losing limited liability.
An LLP has its own legal personality and its members' liability is generally limited.
A partnership can end by agreement, expiry of a term, a partner's departure, or by court order, depending on the rules.
On winding up, the firm's assets are used first to pay outside creditors, then to settle accounts between partners.

Common mistakes

Saying a general partnership is a separate legal person. Fix: Remember that separate personality comes from registration as a company or LLP. A general partnership has none.
Giving limited liability to every partner in a limited partnership. Fix: An LP always needs at least one general partner with unlimited liability.
Dividing profits in proportion to capital when there is no agreement. Fix: Without agreement, profits and losses are shared equally. Capital ratios matter only if the agreement says so.
Saying a partnership needs a written agreement or registration. Fix: A partnership can arise by conduct. Writing is advisable but not required.
Saying a secret restriction on a partner's power frees the firm. Fix: A restriction only protects the firm if the third party knew of it or the act was not usual for the business.
Treating the firm as a separate legal person that alone owes the debt. Fix: Remember there is no separate personality for a general partnership, so partners are personally liable without limit.
Saying limited partners can never lose limited liability. Fix: Link protection to non-participation in management. If a limited partner manages, liability may become unlimited.
Saying a limited partnership has no unlimited liability. Fix: Remember the general partner always has unlimited liability. The structure needs at least one.
Paying partners' capital before partners' loans. Fix: A loan is a debt of the firm. It ranks before capital. Capital is repaid only after loans.
Treating dissolution and winding up as the same thing. Fix: Dissolution ends the relationship. Winding up is the process of realising assets and settling debts that follows.

Exam tips

Sort every scenario by two features first: registered or not, and limited or unlimited liability. Most options fall away quickly.
In OT questions, watch for the word 'all'. Statements such as 'all partners have limited liability' are usually wrong.
For a Section B multi-task question, write the rule in one sentence, apply it to the named people, then give a conclusion.
Use a short comparison of partnership and company. Cover personality, liability, formation and regulation.
Do not lose time on local statute detail. LW Global tests principles.
In objective questions, look for the words agreement, silent or no agreement. They tell you whether to use the written terms or the defaults.
Learn the defaults as a short list: equal profit, equal management, no salary, no interest, unanimity for new partners.
Watch for options that say registration or writing is essential. These are usually wrong for a general partnership.