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Partnership Existence and Termination of Agency Contracts: Legal Implications

  • 04 Pages
  • Published On: 16-10-2023

Question 1

a. Even though, Mr Smith and Miss Carmichael do not have any formal partnership agreement, they are partners in the business. The Partnership Act 1890 is applicable here to determine whether a partnership exists. Section 2(3) provides that if a person receives a share of profits from the business, it demonstrates that they are in a partnership. Thus, the fact that they have been carrying on the business is a proof that they have been sharing profit and hence, partnership exists between them.

b. Mr Smith and Miss Carmichael must note that termination of an agency may be done in many ways. One of the ways to terminate a contract of agency is when there is serious breach committed by the agent. For such termination, no reasonable notice is required to be observed by the party who wants to terminate. Another way to terminate is the principal to exercise the right to terminate the agency at any time without having to show any extraordinary and serious reason.

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c. As partners, they have the right to equal and full authority to act as agent for the partnership. Section 5 of the 1890 Act provides that such exercise of the authority must be for purpose of business of the partnership. As agent, they have the right to payment. This is provided under Section 2(3) regarding profit sharing. An agency is a fiduciary relationship. Thus, an agent must act in good faith towards the principal and must not allow conflict of interests. Also, an agent must not benefit from secret profits, which would breach their fiduciary duty.

d. The partnership has separate legal personality. This is also provided under Section 4(2) of the Partnership Act 1890. They are jointly and severally liable for claim made against them or any or any of them. Each of them can be liable in full for any damages. In this case, Mr Smith acted as agent of the business for the purpose of the business. In such case, the business shall be liable to pay for the scaffold.

Question 2

a. Sole trader offers independence of running own business as an individual. However, the disadvantage lies in the tax and finance compliances. The owner is responsible for keeping business records, filing tax returns, paying income taxes, business debts, and other compliance obligations.

To register, choose a name. Promptly register. As a new trader who has not sent tax returns earlier, notify HM Revenue and Customs. Register a Self Assessment tax returns and Class 2 National Insurance concurrently. As a new trader who has sent tax returns earlier, register as self-employed and register for Class 2 National Insurance using form CWF1. Use 10-digit Unique Taxpayer Reference to register.

b. Partnership gives the advantage of ease of formation. It attains a separate legal personality. It provides transparency in tax compliance and partners are taxed only on their share of income and gains.

To register, choose a name and a ‘nominated partner’. Register the firm with HM Revenue and Customs (HMRC).

c. Limited Liability Partnership requires limited registration and public disclosure requirements. The firm attains a separate legal personality. It can be used in funds or other structures. It provides tax transparency. Partners are taxed subject to profit-sharing ratios and not tax at partnership level. However, it requires filing annual accounts in circumstance.

To register, it requires two or 2 or more members, who can be a person or a company. It requires a name, a registered address, and at least two ‘designated members’. It requires a LLP agreement. It must be registered with the Companies House.

d. Limited Company attains a separate legal personality. Shareholders have limited liability. Its shares can be transferred. It offers lesser corporation tax on income and gains at the rate of 19%. However, its disadvantage lies in the reporting and public disclosure requirements.

The following documents must be sent to the Registrar at Companies House in Edinburgh (Scotland): Form IN01; Memorandum of association; Articles of association. A certificate of incorporation will be issued with a unique identifying number.

It would be suitable for Mark to set up partnership business with his sister. The ease of formation and transparency in tax will give them focus on operation of the business. The liability structure, including tax, will also enable easier differentiation of their respective responsibilities and liability.

Question 3

i. Charlene and her best friend can adopt the procedure of general dissolution of their partnership by an agreement between them. Such general dissolution involves winding-up of the partnership and taking of and settling of accounts. This dissolution is by unanimous agreement of the partners. Section 32(c) of the Partnership Act 1890 provides that if the partnership is for an undefined time, a partner may notice the other of his or her intention to dissolve the partnership.

ii. The name of the shop must not be the same as a current registered company and as a name associated with another company that carries goodwill. It must not be sufficiently similar and may not likely mislead by suggesting a connection between applicant and the registered company.

The Companies Act 2006 prohibits registration of such name. However, it provides that it could be allowed in specified circumstances or specified consent. Charlene must show that the name was adopted in good faith and the interests of the other company will not be adversely affected to significant extent.

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  1. Odavia Bueno Díaz and Marco B. M. Loos, Mandate Contracts (sellier european law publishers 2012).
  2. David Wright, Using Commercial Contracts: A Practical Guide for Engineers and Project Managers (Wiley 2016).
  3. Sean Crossan, Introductory Scots Law Third Edition: Theory and Practice (Hodder Education 2017).
  4. David Wright, Using Commercial Contracts: A Practical Guide for Engineers and Project Managers (Wiley 2016).
  5. David Wright, Using Commercial Contracts: A Practical Guide for Engineers and Project Managers (Wiley 2016).
  6. mygov.scot, ‘Set up as a sole trader’ (2020) accessed 7 October 2020 .
  7. Will McIntosh, Brodies LLP, ‘Establishing a business in the UK (Scotland)’ (2020) accessed 7 October 2020 .
  8. GOV.UK, ‘Set up a business partnership’ accessed 7 October 2020https://www.gov.uk/set-up-business-partnership>.
  9. Will McIntosh, Brodies LLP, ‘Establishing a business in the UK (Scotland)’ 2020) accessed 7 October 2020 .
  10. GOV.UK, ‘Set up and run a limited liability partnership (LLP)’ accessed 7 October 2020 .
  11. Will McIntosh, Brodies LLP, ‘Establishing a business in the UK (Scotland)’ 2020) accessed 7 October 2020 .
  12. Ibid
  13. GOV.UK, ‘Incorporation and names’ (2020) accessed 7 October 2020 .

Bibliography Books

Crossan S, Introductory Scots Law Third Edition: Theory and Practice (Hodder Education 2017).

Díaz OB and Marco B. M. Loos, Mandate Contracts (sellier european law publishers 2012).

Wright D, Using Commercial Contracts: A Practical Guide for Engineers and Project Managers (Wiley 2016).

  • GOV.UK, ‘Set up a business partnership’ accessed 7 October 2020 .
  • GOV.UK, ‘Set up and run a limited liability partnership (LLP)’ accessed 7 October 2020 .
  • GOV.UK, ‘Incorporation and names’ (2020) accessed 7 October 2020 .
  • McIntosh W, Brodies LLP, ‘Establishing a business in the UK (Scotland)’ (2020) accessed 7 October 2020 .
  • mygov.scot, ‘Set up as a sole trader’ (2020) accessed 7 October 2020 .

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