Partnerships and Limited Liability Partnerships - Assignment Example

Partnerships and Limited Liability Partnerships Question 1 Step 1 The area of law with which the mentioned case is related, falls under the Partnership Act of 1963 and the Tort Liability to Third Parties that is covered in the Agency Law and falls under the Australian Consumer Law1. Step 2 It can be stated that, “Partnership is the relationship which exists between persons carrying on a business in common with a view to profit. It involves an agreement between two or more parties to enter into a legally binding relationship that is essentially contractual in nature”2. At the same time, it is necessary to understand the conception of Agency in this context as Partnerships are understood to be basically relationships of agency. Agency is defined as an individual who is known as Agent, intentionally agreeing and accepting to act for or on behalf of someone else. Here, someone else is referred to as the Principal. This is done with the mutual consent of both the parties involved3. It has been identified in the Partnership Act that the terms ‘partnership’ and ‘firm’ have the same insinuation4. In context to the case, it is important to discuss the fiduciary responsibilities of a partner when binding a partnership in contracts. Fiduciary implies a particular individual on whom extreme assurance and faith has been placed by another to handle and guard finance or possessions. It is referred as an association where an individual is obliged to do something for the advantage of another individual5. It has been further added that there are three most important duties that arise where there exists such an association. The foremost is the duty or responsibility of loyalty which means the responsibility to do something on behalf and in support of the particular individual or body towards whom the responsibility is outstanding and not taking benefit of, or damaging, it or him. The second is the duty or responsibility of obedience which means the obligation and responsibility to do something inside the limits of the power or faith. The third is the duty or obligation of care which means the duty to do something cautiously. At times the obligation of disclosure of complete material information is stated as the fourth duty6. These fiduciary duties relate to sections 33, 34 and 35 of the Partnership Act 19637. The only fiduciary responsibility for which a particular partner is indebted to the other existing partners and the partnership is the responsibility of loyalty or faithfulness and the responsibility of care. A particular partner’s responsibility or obligation of loyalty is restricted to provide accounts to the partnership regarding any kind of possessions, profit or advantage that has been obtained by that partner in carrying out the business of partnership or by using a property that is possessed by the firm and all the partners jointly and also to cease from transacting with the firm where he has been acting as a partner, as an unfavourable party or entering into a competition with the firm in the course of carrying out the business of partnership. Similarly, a partner’s obligation of care is restricted to abstaining from grossly negligent or irresponsible behaviour, misbehaviour that was on purpose or for disobeying a law intentionally. These obligations might not be surrendered or disposed of in the agreement of partnership and in order to accomplish them every individual partner ought to act time and again in relation to the responsibility of trust and fair dealing. These are pertinent to all the contracts as well as agreements of partnership. It is allowed for a partner to follow one’s own interests but it should be ensured that in the course of doing so, the above mentioned responsibilities should not be violated8. The law of agency also affects the partnership and the liability to third parties involved in such relationships and needs to be mentioned too as it is related to the case study. It is mentioned in the law of agency that any third party dealing with an agent is considered to do so at his/her own risk. The act of the agent will connect the principal too if only approval for such acts have been made apparent by the principal. Consent can be expressed through actual authority which means that the principal has articulated his will to the agent or the agent has inferred his consent through prior agreement. Consent can be expressed through apparent authority which means that the principal states his approval to the third party directly with whom the agent is dealing. Consent can also be expressed through inherent authority which means this comes from a wish to defend the rational hopes of the third parties dealing with an agent. This can also be perceived as a term that is understood in the existing contract in between a principal as well as all those dealing with its agents9. The causes behind the dissolution of an agreement of partnership are actions of the partners, judicial law or operation of law8. These causes of dissolution come under sec 37, 38, 39 and 407. Step 3 With reference to the above statements mentioned, it can be assumed and stated that Bill Fields was not aware of the fact that Jack Richards had appointed some other person called Henry Phillips to provide his firm with appropriate advice for their client Bill. Bill had gone to Jack Richards for investment advice, so, it was the duty of Richards to advice him and not appoint someone else to do so. In this case, when Richards appointed Phillips to advice the firm with investment advice then Richards should have informed Bill regarding this. Now, Bill can claim his losses under Tort Liability to Third Parties under the Australian Consumer Law which relates to the law of agency too. Let us assume that the other partners of the firm knew about this action of Jack Richards and so, all the partners would be equally liable to pay for Bill’s losses as all the other partners are responsible for the loss under Sec 9, 10 and 14 of the Partnership Act 1963. Step 4 From the above case and from the mentioned laws it can be concluded that it was the duty of Jack Richards to inform his client Bill Fields about appointing the other person Henry Phillips as the investment adviser for Bill on Richards’ behalf. As, Bill was not informed about this, so after suffering personal financial injury he can claim his losses from all the partners of the firm as all the partners are uniformly responsible for his losses. Question 2 Dissolution of partnership is generally referred to as the scenario in which the partnership is dissolved due to alteration of relation among the partners as a result of any partner declining to be associated in the business. In the historical context, the withdrawal of a member from an on-going partnership dissolved the relation of partnership. The partnership sustained to subsist for the restricted intention of winding up the outstanding obligations of the business along with the affairs of the business. After dissolution, the residual assets are generally distributed to the creditors as well as the partners. After completing of this procedure, a partnership is identified to be terminated and can go out of existence10. The Revised Uniform Partnership Act to certain extent has altered the regulations10. Dissolution Caused by the Acts of Partners Dissolution may happen in a number of ways through the actions of the partners. Firstly, any kind of partnership could be suspended by an agreement between the partners. Secondly, when a partnership which is at will is an association that is voluntary and a partner possesses the authority to distance oneself from the partnership at any point of time and possibly through notice, can dissolve the partnership. However, after the dissolution if any of the partners along with the withdrawn partner does not wish to stop the partnership then the other existing partners might continue. Thirdly, a partnership can be suspended if the dissolution is supported by minimum half of the other existing partners in a period of ninety days of the dissociation of a partner that is triggered by incapacity, bankruptcy or death8. Dissolution Caused by Operation of Law The three major aspects related to operation of law of a business that can cause dissolving of a partnership are illegality, bankruptcy and death. Death of any one member belonging to a partnership in general scenario dissolves the entire partnership except the agreement states that in such scenario of death the partnership shall not be dissolved10. Any happening that makes it illegal for pursuing a partnership business will end in dissolution. However, if the dissolution happens because of illegality of the business of partnership then it is possible for the partners to come to decision in a time frame of ninety days to alter the quality of the business and carry on with the partnership8. Dissolution Caused by Judicial Decree A request for dissolution of partnership can be put up in a court by a partner through judicial decree. If it is concluded by the court that the business of partnership can just be carried out at a loss and then it might agree for the dissolution. It is also applicable in case any of the partners has committed a deception or scam on the other existing partners or in a circumstance when there is disagreement among the partners weakening the capacity to carry out the partnership business8. Misconduct in a partnership can be caused by a member in the partnership due to which the entire partnership can be jeopardised. As a result of the misconduct caused by a partner the other partner in the partnership can claim to dissolve the entire partnership. The court can in such scenario decree dissolution related to the partnership. The various misconducts that can result in such scenario include dishonesty, drunkenness due to habit, constant infringement of the agreement provided in partnership, desertion of entire business by a particular partner and conflicting disagreement among the existing partners of the business in relation to crucial issues10. Judicial decree can also take place in the circumstances where a partnership of the business fails to earn profit, as earning profit is one of the prime objectives due to which a partnership takes place. If a business is making incessant losses, in that scenario a partner cannot coerce the other partners to presume sustained losses. This scenario of dissolving of the partnership also occurs when the success in relation to the existing business is assumed to be exceedingly improbable and further conducting of operation is considered to be futile10. Dissolution Caused by Notice It is necessary for a partner to express his or her intention to depart from the firm or to dissolve to every individual partner. This notice can be stated by that partner through words or through actions. All the partners would share accountability and responsibility for the actions of any partner who still continue the business for lack of information regarding the dissolution. Till the other partners are served the notice, the partner who has withdrawn would still be responsible as a partner for all the contracts that were formed for the firm8. References Australian Capital Territory. 2009. “Partnership Act 1963”. Republication No 7, p.p. 1-87. Ashcroft, John D. & Ashcroft, Janet E. Law for Business. US: Cengage Learning, 2007. California State University 2011. Partnerships and Limited Liability Partnerships. http://myweb.csuchico.edu/~evu/Education/bLaw%20Chapter%2036.htm (Accessed August 10, 2011). Farlex Inc. 2011. Financial Dictionary. http://legal-dictionary.thefreedictionary.com/Fiduciary+duties (Accessed August 10, 2011). Hamilton, Charles E. “Identifying Breaches of Fiduciary Duties”. Hamiltonfirm, p.p. 1-6. Latimer, Stephen P. Australian Business Law. Australia: CCH Australia Limited, 2010. Latimer, Stephen P. Australian Business Law 2011. Australia: CCH Australia Limited, 2010. Lycos Inc. 1998. “Massachusetts Bar Exam Review: Agency & Partnership”. Agency & Partnership, p.p. 1-10. The University of Sydney. 2006. “Partnership.” Associations, p.p. 1-40. Vantage Media LLC 2008. Corporations Outline. http://www.google.co.in/url?sa=t&source=web&cd=7&ved=0CEwQFjAG&url=http%3A%2F%2Flaw.wustl.edu%2Fsba%2Fupperlevel%2FCorporations%2FParedes%2FCorporations-Paredes4-F03.doc&rct=j&q=b.%09The%20goal%20of%20informed%20rational%20choice%20between%20competing%20investment%20options&ei=HkJCTu-2KMTVrQegydzLBw&usg=AFQjCNGPcM-y-lyGFp2QZFRn7dbzWuzLrQ&sig2=FsW2fThK7RVofMituUFBdA&cad=rja (Accessed August 10, 2011). Bibliography Duncan, David W. Joint Ventures Law in Australia. Australia: Federation Press, 2005. Read More