07/11/2022

Business
Associations
LLB (Hong Kong)
INTRODUCTION

Contact details

Martin Harrison

martin.harrison@mmu.ac.uk

1
 07/11/2022

Revision Lectures

Lecture 1-Introduction and Partnership

Lecture 2-Separate Legal Personality
Lecture 3-Minority Shareholders
Lecture 4-Directors Duties
Lecture 5-Liquidation

Introduction
Business Media
Sole trader

Partnership

Private Limited company

2
 07/11/2022

Sole Trader v Partnership v

Company
Sole trader advantages and disadvantages

Partnership advantages and disadvantages

Company advantages and disadvantages

Life Cycle of a Sole Trader

Formation
Life
Bankruptcy/death/cease business

3
 07/11/2022

Life Cycle of a Partnership

Formation – informal or inferred by conduct – better to

have bespoke agreement
Life
Dissolution or sale

Life Cycle of a Company

Formation
Life
Liquidation

4
 07/11/2022

Forms of business media:

initial questions
Capital
Risk
Control

Forms of business media

• Sole trader

• Capital x
• Risk x
• Control √

10

5
 07/11/2022

Forms of business media

Partnership
S1 Partnership Act 1890
2 partners minimum – unlimited maximum number
Capital √
Risk x
Control √

11

Forms of business media

• Company
• Application for registration-Form IN01
• Memorandum of association
• Company’s constitution-Articles of Association
• model articles
• Statement of share capital and initial shareholdings
• Statement as to proposed officers (s12 CA 06)-
Directors and Co Sec
• Statement of compliance
• Fee
• Capital √
• Risk √
• Control – Directors/Shareholders?

12

6
 07/11/2022

Concepts within companies

• Capital =shares
• Risk = loss of investment
• Control
• Shareholders: % of shareholding
• Directors: one person, one vote

13

Sources of Company Law

Companies Act 2006

Company Directors Disqualification Act 1986
Insolvency Act 1986
Case law
European Law – Regulations and Directives
Self regulation e.g. Company Policies
Memorandum and Articles of Association

14

7
 07/11/2022

BASIC COMPANY STRUCTURE

Shareholders

Company

Assets Contracts
Employees/Directors

15

BUSINESS
ASSOCIATIONS
Partnership Law

16

8
 07/11/2022

General Partnership

S1 Partnership Act 1890

No separate legal entity
No need for written agreement
No statutory requirements
Lack of registration and limited regulation

17

Sources of Partnership Law

• Partnership Act 1890

• Partnership Agreement – if any
• Textbook – Morse on Partnership
• Types of partnership
• Limited Partnerships Act 1907
• Limited Liability Partnerships Act 2000
• Part 41 Companies Act 2006-Regulates Business Names
Insolvency Act 1986

18

9
 07/11/2022

Definition of Partnership

• S 1(1) Partnership Act 1890

• ‘the relation which subsists between persons carrying
on a business in common with a view to profit’

• S 4(1) PA 1890
• ‘Persons who have entered into partnership with one
another are for the purposes of this Act called
collectively a firm, and the name under which their
business is carried on is called the firm-name.’

19

Partnership Law

• Partnership Act 1890

• Common law and equity
• Contract: agency principles apply
• Equity: fiduciary duties
• Partners are therefore concurrently:
• Contractors
• Agents
• Principals
• Fiduciaries
• Beneficiaries

20

10
 07/11/2022

Essentials of a partnership:
business(1)
Has to be a commercial venture not
charitable
NB problems with family and business relationships
Palter v Zeller (1997)
Ravindran v Rasanagayam (2000)
The closer the non-business relationship,
the less formality to be expected in the
business relationship

21

Essentials of a partnership:
business(2)
• Contemplated partnerships
• “The mutual rights and obligations of the parties do not depend
on whether their relationship broke up the day before or the day
after they actually transacted any business of the joint venture.
The question is not whether the restaurant had commenced
trading, but whether the parties had done enough to be found to
have commenced the joint enterprise in which they had agreed
to engage.”
• Miah v Khan [2000] per Lord Millet – sufficient steps taken
• Goudberg v Herniman Associates Pyt Ltd (2007) – insufficient steps
taken
• Blue Line Hockey Acquisition Co v Orca Bay Hockey Ltd Partnership
(2009) – insufficient steps taken
• Christie Owen & Davies plc v RAOBGLE Trust Corporation [2011]
EWCA Civ 1151 – sufficient steps taken
• Ilott v Williams [2013] EWCA Civ 645 – insufficient steps taken

22

11
 07/11/2022

Essentials of a partnership:
business(3)
• Single venture partnerships
• Must be a commercial venture
• Taylor v Good (1974) CA
• Not clubs and other non-profit-making associations
• Wise v Perpetual Trustee co [1903]

• S2 PA 1890: co-ownership of an asset with a

view to profit does not create a partnership
• Vekaria v Dabasia (1998) CA

• Promoters – not a partnership

• Keith Spicer Ltd v Mansell [1970]

23

Essentials of a partnership:
carried on in common
• Minimum of 2 partners participating in the
business
• Separate businesses v joint business
• Blues Hairshop v Customs and Excise Commissioners [2000]-
no partnership
• Effect of a written partnership agreement
• Saywell v Pope (1979)
• Kriziac v Ravinder Rohini Pty Ltd (1990)
• Bissell v Cole (1997)

• Control
• Canadian Pacific Ltd v Telestat Canada (1982)

24

12
 07/11/2022

Essentials of a partnership:
with a view of profit
• Mere receipt of profit
• Waugh v Carver (1793)
• Cox v Hickman (1860) HL and s2(3) PA 1890
• ‘The mere fact that this consideration was measured by reference to a share of the net profit
does not in our judgment convert the agreement into a partnership’.
Strathearn Gordon Associates Ltd v Commissioners of Customs & Excise [1985]

• Division of profits
• Saywell v Pope (1979)
• M Young Legal Associates Ltd v Zahid [2006] and Rowlands v Hodson [2009]

• Gross or net profits?

• S2(2) PA 1890 and Cox v Coulson [1916] CA

25

Formal partnerships: duration

• Presumption of partnership at will

• Naish v Bhardwaj (2001)
• S26 (1) PA 1890
Where no fixed term has been agreed upon for the duration of
the partnership, any partner may determine the partnership at
any time on giving notice of his intention so to do to all the other
partners.
• Moss v Elphick [1910] CA
• Maillie v Swanney (2000)
• Form of notice
• S26 (2) PA 1890
• Partnership constituted by deed
• Partnership agreement, oral or in writing.
• McLeod v Dowling (1927)
• Notice effective when received
• NB Walters v Bingham [1988]
• Following expiration of fixed term partnership
• S27 PA 1890
26

13
 07/11/2022

Types of partnership

s32
Fixed term
Single adventure or undertaking
At will- for an undefined period

27

Partnership by Financial
Involvement(1)
Profit sharing as evidence of partnership: s 2(3) PA
1890
the receipt by a person of a share of the profits of a
business is prima facie evidence that he is a
partner in the business, but the receipt of such a
share, or of a payment contingent on or varying
with the profits of a business, does not of itself
make him a partner in the business

NB has to be net profits

Davis v Davis [1894]

28

14
 07/11/2022

Partnership by Financial
Involvement(2)
• Sharing of losses
• Northern Sales (1963) Ltd v Ministry of National Revenue
(1973)
• Significant (but not conclusive), even though:
• No contribution of capital
• No common management
• No common assets
• No common facilities
• No common bank account
• No common firm-name
• Cf Manufacturing Integration Ltd v Manufacturing Resource
Planning Ltd (2000) – no partnership
• Cf Walker v Hirsch (1884) – no partnership

29

Partnership by Financial
Involvement(3)

Specific cases – no partnership

Remuneration of employees: S2(3)(b)
Provision for dependants: s2(3)(c)
Creditors: s2(3)(a) and (d) - see next slide
Sale of goodwill: s2(3)(e)

30

15
 07/11/2022

Partnership by Financial
Involvement(4)
• S2(3)(a)
The receipt by a person of a debt or other liquidated
amount by instalments, or otherwise out of the accruing
profits of a business does not of itself make him a
partner in the business or liable as such
• S2(3)(d)
The advance of money by way of loan to a person
engaged or about to engage in any business on a
contract with that person that the lender shall receive a
rate of interest varying with the profits or shall receive a
share of the profits arising from carrying on the
business, does not of itself make the lender a partner
with the person or persons carrying on the business or
liable as such. Provided that the contract is in writing,
and signed by or on behalf of all the parties thereto
• Re Megevand, ex p Delhasse (1878)
• Pooley v Driver (1877) CA

31

Partnership by
Representation
• PERSON LIABLE BY HOLDING OUT
• S14.(1) PA
Everyone who by words spoken or written or by conduct
represents himself, or who knowingly suffers himself to
be represented, as a partner in a particular firm, is liable
as a partner to anyone who has on the faith of any such
representation given credit to the firm, whether the
representation has or has not been made or
communicated to the person so giving credit by or with
the knowledge of the apparent partner making the
representation or suffering it to be made.
• Tower Cabinet Co Ltd v Ingram [1949]
• Nationwide Building Society v Lewis [1997] CA
• HMRC v Pal [2008]

32

16
 07/11/2022

Example Precedent
Partnership Agreement
Formation
Existence
Duration
Holding out

33

BUSINESS
ASSOCIATIONS
Partnership Law
Partners and outsiders

34

17
 07/11/2022

Sections 5 - 18 PA 1890:

‘Relations of Partners to Persons Dealing with Them’

35

Liability of Partners for Contracts:

Types of authority

Agency concepts
Types of authority
Actual- express or implied
Implied –sometimes called usual or presumed
Apparent –sometimes called ostensible
Ratification

36

18
 07/11/2022

S5 authority

Did partner have actual authority? – firm is bound

Did the transaction relate to usual business of the firm?
Would a partner be expected to have this authority?
Did the other party know that P had no authority?
Did the other party know or believe P to be a partner?

37

Implied or usual authority

• S5 PA 1890:
Every partner is an agent of the firm and his other partners for the purpose of the business
of the partnership; and the acts of every partner who does any act for carrying on in the
usual way business of the kind carried on by the firm of which he is a member bind the firm
and his 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 he is dealing either knows that he has no
authority, or does not know or believe him to be a partner.
• Bank of Scotland v Butcher [2003] CA
• Dubai Aluminium Company Ltd v Salaam [2003] HL
• applied in JJ Coughlan Ltd v Ruparelia [2004] CA
‘usual way of business of the kind’ = ‘ordinary course of business’
• The test:
whether the act was so closely connected with the acts that the partner was authorised to
do that, for the purposes of the liability of the firm to third parties, the act may fairly and
properly be regarded as done by the partner in the ordinary course of the firm’s business.
McHugh v Kerr [2003] per Lawrence Collins J

38

19
 07/11/2022

Application to trading
partnerships
Partners will have implied authority to:
Borrow money
Buy and sell trading stock in connection with the firm’s business
Incur debts on account of the firm
Instigate civil proceedings
Mercantile Credit Co Ltd v Garrod [1962]

39

Liability for other wrongs

• LIABILITY OF THE FIRM FOR WRONGS

s10 PA 1890
Where, by any wrongful act or omission of any partner acting in the
ordinary course of the business of the firm, or with the authority of
his co-partners, loss or injury is caused to any person not being a
partner in the firm, or any penalty is incurred, the firm is liable
therefore to the same extent as the partner so acting or omitting to
act.
• Dubai Aluminium Ltd v Salaam [2003] HL
• Test is whether the wrongful conduct is so closely connected with the acts that the
partner was authorised to do, that, for the purpose of liability of the firm to third parties,
the wrongful conduct may fairly and properly be regarded as done by the partner in
the ordinary course of the firm’s business.
• Proceedings Commissioner v Ali Hatem [1999] CA

40

20
 07/11/2022

Liability for other wrongs

Joint and several liability

S9 PA 1890 - joint liability

S3 Civil Liability (Contribution) Act 1978

41

Duration of liability
S17 PA 1890
S36 PA 1890
Actual notice: existing dealings
NB Wood v Fresher Foods Ltd [2007]

Constructive notice: London Gazette

https://www.thegazette.co.uk/

42

21
 07/11/2022

Example Precedent
Partnership Agreement
S5 cannot be varied – but may control decision making
clauses 13 and 14
S9 cannot be varied – third party entitled to sue one/all
S14 – cannot vary – but check notepaper and
representations and apply s 36
S17 –cannot exclude but may vary by agreement
S36 cannot exclude –see clause 21

43

BUSINESS
ASSOCIATIONS
Partners’ obligations and duties

44

22
 07/11/2022

Partners equitable duties

under ss 28-30
S 28 Honesty and full disclosure – Law v Law
Hogar v Shebron
No profit rules – Bentley v Craven
S 29 Personal benefit – Pathirana case
Aas v Benham – limited application
S 30 Duty not to compete – Trimble v Goldberg

45

Fiduciary duties

• Duty of good faith

• Includes duty of confidentiality
• Gorne v Scales (2002)
• Can apply to prospective partners before precise terms of the partnership
agreement have been negotiated
• Can apply on repudiation of partnership agreement
• Hurst v Bryk [2002] HL
• Ss 28-30 PA 1890
• Honesty and full disclosure
• No unauthorised personal profits
• Entitlement to the account of profits
• Olson v Gullo (1994)
• Exploiting a partnership opportunity
• Boardman v Phipps [1967] or Aas v Benham?
• No conflict of duty and interest

46

23
 07/11/2022

Implied contractual terms

• S24 PA 1890
The interests of partners in the partnership property and their rights and
duties in relation to the partnership shall be determined, subject to any
agreement express or implied between the partners by the following
rules
• (1) All the partners are entitled to share equally in the capital and
profits of the business and must contribute equally towards the
losses whether of capital or otherwise sustained by the firm.
• (2) The firm must indemnify every partner in respect of payments
made and personal liabilities incurred by him (a) In the ordinary and
proper conduct of the business of the firm, or (b) In or about anything
necessarily done for the preservation of the business or property of
the firm.
• (3) A partner making, for the purpose of the partnership, any actual
payment or advance beyond the amount of capital that he has
agreed to subscribe, is entitled to interest at the rate of five per cent
per annum from the date of the payment or advance.
• (4) A partner is not entitled, before the ascertainment of profits, to
interest on the capital subscribed by him.

47

Implied contractual terms

• S24 PA 1890 (cont’d)

• (5) Every partner may take part in the management of the
partnership business.
• (6) No partner shall be entitled to remuneration for acting in the
partnership business.
• (7) No person may be introduced as a partner without the
consent of all existing partners.
• (8) Any difference arising as to ordinary matters connected with
the partnership business may be decided by a majority of the
partners, but no change may be made in the nature of the
partnership business without the consent of all existing partners.
• (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.

48

24
 07/11/2022

Expulsion clauses

S25 PA 1890
No majority of partners can expel any partner unless a
power to do so has been conferred by express agreement
between the partners.
Clause 18 Example Precedent Partnership
Agreement solution: expulsion clause
3 questions:
Construe the clause to cover the alleged act/omission
Consider the rules of natural justice
Act in good faith

49

Expulsion clauses (cont’d 1)

• Construing the clause

• Notice to one or to many?
• Re a Solicitor’s Arbitration [1962]
• Procedural compliance
• Application of natural justice
• Know the precise nature of the allegation
• The right to defend
• Hanlon v Brookes 1997 CA Vic.
• Barnes v Young [1898]
• Green v Howell [1910] CA
• Peyton v Mindham [1972]

50

25
 07/11/2022

Expulsion clauses (cont’d 2)

Acting in good faith

Blisset v Daniel (1853)
Kerr v Morris [1987] CA per Dillon LJ
The need to give reasons
The right to a hearing

51

BUSINESS
ASSOCIATIONS
Partnership Property and Dissolution

52

26
 07/11/2022

What is partnership property?

• S 20(1) PA 1890
“all property and rights and interests in
property originally brought into the partnership
stock or acquired, whether by purchase or
otherwise, on account of the firm or for the
purposes and in the course of the partnership
business, are called in this Act partnership
property, and must be held and applied by the
partners exclusively for the purposes of the
partnership and in accordance with the
partnership agreement”
• Fengate Developments v CEC [2005] CA
per Nourse LJ

53

Partnership property

S 21
Unless the contrary intention appears, property bought
with money belonging to the firm is deemed to have
been bought on account of the firm

54

27
 07/11/2022

Dissolution and winding up

• Many different contexts

• Retirement
• Death
• Notice
• Expulsion
• Dispute
• NB insolvency - governed by different rules
• Two alternative outcomes:
• The business is split up
• Continuing partners take over the full business
• Three grounds:
• Contractual
• Automatic
• Those established in court and subject to court orders

55

Contractual

• NB S33 PA 1890
• Death or bankruptcy
• Charging order
• Contrary intention
• Partnership agreement
• Address the question of winding up or continuation of business
following a ‘dissolving event’
• Option to purchase
• Valuation method
• Dispute resolution procedure e.g., arbitration or expert
• Installment options
• NB post retirement restrictions

56

28
 07/11/2022

Illegality (automatic
dissolution)
S34 PA 1890
A partnership is in every case dissolved by the
happening of any event which makes it
unlawful for the business of the firm to be
carried on for the members of the firm to carry
it on in partnership

57

Dissolution by the Court

S35 PA 1890 Grounds

Permanent incapacity
Prejudicial conduct
Persistent breaches of the agreement
Carrying on the business at a loss
Just and equitable ground
Ebrahimi and O’Neal v Phillips

58

29
 07/11/2022

Application of the assets:

realisation
S39 PA 1890
“On the dissolution of a partnership every partner is
entitled, as against the other partners in the firm, and all
persons claiming through them in respect of their
interests as partners, to have the property of the
partnership applied in payment of the debts and liabilities
of the firm, and to have the surplus assets after such
payment applied in payment of what may be due to the
partners respectively after deducting what may be due
from them as partners to the firm; and for that purpose
any partner or his representatives may on the termination
of the partnership apply to the Court to wind up the
business and affairs of the firm.”

59

Application of the assets: order of

payment
• S44 PA 1890
“In settling accounts between the partners after a dissolution of
partnership, the following rules shall, subject to any agreement, be
observed
(a) Losses, including losses and deficiencies of capital, shall be paid
first out of profits, next out of capital, and lastly, if necessary, by the
partners individually in the proportion in which they were entitled to
share profits
(b) The assets of the firm including the sums, if any, contributed by
the partners to make up losses or deficiencies of capital, shall be
applied in the following order
• 1.In paying the debts and liabilities of the firm to persons who are not partners
therein
• 2.In paying to each partner rateably what is due from the firm to him for
advances as distinguished from capital
• 3.In paying to each partner rateably what is due from the firm to him in respect
of capital
• 4.The ultimate residue, if any, shall be divided among the partners in the
proportion in which the profits are divisible.”

60

30
 07/11/2022

Partial dissolution

• S42 PA 1890
“(1) Where any member of a firm has died or otherwise ceased to be a
partner, and the surviving or continuing partners carry on the business of
the firm with its capital or assets without any final settlement of accounts
as between the firm and the outgoing partner or his estate, then, in the
absence of any agreement to the contrary, the outgoing partner or his
estate is entitled at the option of himself or his representatives to such
share of the profits made since the dissolution as the Court may find to be
attributable to the use of his share of the partnership assets, or to interest
at the rate of five per cent per annum on the amount of his share of the
partnership assets.

(2) Provided that where by the partnership contract an option is given to

surviving or continuing partners to purchase the interest of a deceased or
outgoing partner, and that option is duly exercised, the estate of the
deceased partner, or the outgoing partner or his estate, as the case may
be, is not entitled to any further or other share of profits; but if any partner
assuming to act in exercise of the option does not in all material respects
comply with the terms thereof, he is liable to account under the foregoing
provisions of this section. ”

• NB remember ss14 and 36 PA 1890

61

Post term restrictions

To prevent disputes
Geographical restrictions – in restraint of trade?
Non solicitation
Garden leave

62

31
 07/11/2022

EXAM TIPS

IRAC
Issue-Rule/Law-Apply-Conclusion
Introduction
Statute (Partnership Act 1890) and/or case law
Footnotes and bibliography including articles on
proposed reform (if any).
Consider the Example Precedent Partnership Agreement

63

32