Partnership Dissolution and Asset Distribution

This assignment focuses on the legal aspects of dissolving a partnership under the Partnership Act 1908. It analyzes when a court can dissolve a partnership, particularly due to prejudicial actions by a partner. The assignment then delves into the process of settling accounts after dissolution, outlining how assets are distributed among partners and creditors. It also incorporates relevant case law to illustrate the application of legal principles in real-world scenarios.

Running Head: Law 1
Law

Law 2
Answer 1
Part A
Suitability of general partnership, limited partnership, and joint venture:
PART CLIENTS GENERAL
PARTNERSHIP
LIMITED
PARTNERSHIP
JOINT VENTURE
1 Simon General partnership
is suitable in case of
Simon, because in
this person is
involved in day to
day operations of the
business and liable
for all the debts and
liabilities of the
company.
It is not suitable for
Simon because in this
activities of the partner
are restricted.
It is not suitable for
Simon as he wants
to engage in day to
day operations of
the partnership.
2 Sue It is not suitable for
Sue because in this
liability of the
partner is not
limited.
Limited partnership is
suitable for Sue, because
Sue wants to limit her
liability while investing in
the business. Limited
liability limits the liability
of the partner up to the
It is not suitable for
Sue because liability
is not limited.

Law 3
capital invested by the
partner.
3 Tom It is suitable for Tom
because in this Tom
can engage in day to
day activities of the
business1.
It is not suitable for Tom
because in this activities
of the partner are
restricted.
It is suitable for
Tom as he wants to
engage conduct
business for
protecting his
investment in the
business.
Part B
Features of limited partnership which seems attractive:
Section 11 of the Limited Partnership Act 2008 states, limited partnership is separate legal
person. In other words, it is a separate entity and identity of partnership is not clubbed with the
partners. Limited partners under this partnership are not liable for the debts and liabilities of the
partnership and they are only liable up to the extent of their capital invested2.
1 Companies office, FAQs on General and Limited Partners, <
https://www.companiesoffice.govt.nz/companies/learn-about/other-registers/limited-partnerships/faqs/general-
partners-limited-partners#section-6>, accessed on 19th September 2017.
2 Limited partnership Act- 2008.

Law 4
One more advantage of separate legal entity is that limited partner gets the benefit of being taxed
as partnership.
Section 50 of the Limited partnership 2008 states, as per the partnership agreement limited
partner does not own any fiduciary duty towards the limited partnership or any other partner. In
other words, limited partner is not fiduciary obliged towards partnership or other partners in his
limited partner capacity3.
Answer 2
Section 5 of the Partnership Act 1908 states the rules which determine the existence of
partnership are stated below:
Sharing of profits can be considered as prima facie evidence for the purpose of determining the
partnership. This can be understood through case law Newstead v Frost [1980] 1 All ER 3634. In
this case, court stated that view to earn profit must be the primary motive of the business5.
Following receipts of profit cannot be considered as sharing of profit and does not make person
partner:
 Payment related to debt made to person from profits.
 Sale of goodwill of partnership.
 Sharing profit with employees and agents.
3 Limited partnership Act 2008- Section 50.
4 Newstead v Frost [1980] 1 All ER 363.
5 Partnership Act 1908- Section 5.

Law 5
In the present case, two partners share profit of the business, and sharing profit can be considered
as prima facie evidence of partnership. Therefore, partnership exists, and both Tom and Oliver
are the partners. Other two partners cannot be considered as partners because they receipt debt
from the profits.
Answer 3
Part a (i)
Section 27 of the partnership Act 1908 states, default rules stated by partnership Act are applied
on partners unless these rules are modified by the parties. Clause a of this section states if any
partner makes any actual or advanced payment to the partnership other than amount of capital,
then such partner has right to get interest at the rate of 5% per annum6.
Section 227 of the Act states that mutual rights and duties of the partners stated under partnership
agreement or under Act can be changed after getting approval from all the partners. It must be
noted that approval given by the partners must be given either in express way or implied way.
In this case, Tom can charge interest on his loan at the rate of 8% after getting consent from all
other partners.
Part a (ii)
6 Partnership Act 1908- Section 27.
7 Partnership Act 1908- Section 22.

Law 6
Clause b of section 27 states, partnership firm indemnifies the partners of the firm against the
payments made and personal liability incurred by partners in the ordinary course of the business.
Therefore, Oliver, Simon, and Simon are not personally liable for $70000 due to bank.
Part b (i)
Section 27 states the default rules which applied on the partners of the firm if partnership
agreement does not exist, and clause a of this section states that partners share equal profits and
contributes equally in the loss.
Part b (ii)
If partnership agreement exists then parties can change above stated rule with the consent of all
the parties as per section 22 of the Act.
Answer 4
Part a (i)
Section 13 8of the Act states, that if any partner commits any wrongful act or omission while
conducting his activities in the ordinary course of the business, then for the acts of such partner
partnership firm is also liable. Partnership firm is liable up to the same extent which that partner
who commits act or omission is liable. This can be understood through case law Polkinghorne v
8 Partnership Act 1908- Section 13.

Law 7
Holland (19349). In this case, Court held that that investment given to P was given in the
ordinary course of business. In this case, firm is liable for the acts of Edward.
Part a (ii)
Section 8 of the Act states, partnership firm and partners are liable for the acts of partner if such
acts are conducted by partner in the ordinary course of the business10.
Section 9 of the Act states if partner is not authorized to do any act then such act does not bind
the other partners. In other words, partners are only liable for the acts of the other partners if such
partner is authorized to do that act11.
Sections 12 of the Act states, partners of the firm are jointly liable with other partners for the
debts and obligations of the firm12.
In the present case, act done by Edward is an authorized act which means that both partnership
firm and all the current partners of the firm are liable for the act of Edward.
Part a (iii)
9 Polkinghorne v Holland (1934).
10 Partnership Act 1908- Section 8.
11 Partnership Act 1908- Section 9.
12 Partnership Act 1908- Section 12.

Law 8
Section 10 of the Act states, if any partner uses the firm’s credit for any other purpose other than
ordinary course of the business and such purpose is not connected with the business, in such case
partnership firm is not liable for the act of the partner unless such act is authorized by the other
partners of the firm. In the present case, George uses the credits of the firm for his personal use
and this act of George is not authorized by other partners. Therefore, firm is not liable for the
acts of the George.
Part b (i)
Clause 2 of Section 20 of the Act states, if any partner retires from the partnership firm then such
partners is liable for the debts and obligations of the partnership which are incurred before the
retirement of the partner13.
Clause 3 of this section states, retiring partner can be discharged from the existing liabilities be
entering into agreement between themselves and members of the firm which is newly constituted
and with creditors of the firm also. This can be understood through case law Pont –v- Wilkins
[1992]14. In this case, retired partner Wilkins was held liable for the debts of the firm because
Wilkins fail to give notice of his retirement to these clients. In the present case, henry is liable for
the debt because he fail to give notice of his retirement to Melissa.
Part b (ii)
13 Partnership Act 1908- section 20.
14 Pont –v- Wilkins [1992].

Law 9
Clause 1 of section 20 states, if any person becomes partner in an existing firm then such partner
is not liable for the debts and liabilities which incurred before such person become partner. In the
present case, debt incurred in 2005 and Edward become partner in 2006 because of which he is
not liable for the debt incurred before he become partner in the firm.
Answer 5
Part a
Section 38 of the partnership Act 1908 states, that Court can dissolve the partnership if following
factors are satisfied15:
Clause c of section 38 states if any partner other than partner suing has been guilty for
conducting any such act which prejudicially affects the interest of the partnership firm. This can
be understood through case law Carmichael v Evansa [1904] 1 Ch 84616. In this case, partner of
the drapery firm was convicted because he travelling in the train without valid ticket. Court
decided to dissolve the firm because act of the partner’s act affect the reputation of the firm.
In the present case, Both Edward and Victoria can seek dissolution order from the Court on the
ground that activities of George prejudicially affect the reputation of the firm.
Part b
Section 47 of the Act states, while settling the accounts of the firm after the dissolution of the
firm between the partners must be done after considering below stated rules17:
15 Partnership Act 1908- section 38.
16 Carmichael v Evansa [1904] 1 Ch 846.
17 Partnership Act 1908- Section 47.

Law 10
 Losses and deficiency of capital must first pay out of profits, then from capital, and lastly
by partners individually in that proportion in which they share profits.
 Assets of the firm including amount contributed by partner must be settled in following
manner:
 Firstly settle debts and liabilities of the third parties.
 Secondly pay out the debts of the partner.
 Thirdly pay out the capital contributed by partner.
 Lastly, if any amounts remain them such amount is distributed among the partners
of the firm.
In the present case, firm has assets of $200000 and accounts are settled in following manner:
 Firstly a debt of creditors that is $100,000 is paid from the assets available to the firm.
 Secondly, debt of the partner is paid out from the assets available to the firm that is firm
paid $ 40000 due to George.
 Thirdly, capital of $ 18000 is paid from the assets of the firm.
 Lastly, amount remaining of $42000 is distributed between the partners of the firm on
basis of their profit sharing ratio that is 3:2:1.

Law 11
BIBLIOGRAPHY
Statute
Partnership Act 1908.
Limited partnership Act 2008.
Website
Companies office, FAQs on General and Limited Partners, <
https://www.companiesoffice.govt.nz/companies/learn-about/other-registers/limited-
partnerships/faqs/general-partners-limited-partners#section-6>, accessed on 19th September
2017.
Case law
Newstead v Frost [1980] 1 All ER 363.
Polkinghorne v Holland (1934).
Pont –v- Wilkins [1992].
Carmichael v Evansa [1904] 1 Ch 846.