Australian Company Law Partnership Law Company Business Partnership Essay

Published Date: 02 Nov 2017

Name

Institution

one

The action by Adam to order the exercise and spin bikes was in the best interest of the partnership. The objective of the partnership is to promote health through a fitness program. The partners wish to achieve enhanced workers productivity, reduced cases of musculoskeletal injuries and decreased cost of employee’s compensation. Adam ordered the bikes to enhance the program in accordance with the goals of the partnership. However, Adam did not consult the other partners before making the decision to order the bikes. The bikes were in limited supply and that could be the reason why the Adam did not consult his counterparts before making the order.

The Partnership Act 1963 (s13) stipulates that partners in a firm that is not limited partnership will be liable for all debts that the company incurs, or any obligations of the company during the period that they are partners. The section specifies that even after the death of a partner, his or her estate will be used to cover any debts incurred by the partnership when the partner was living and a member of the partnership (s13, Partnership Act 1963). In case of a limited partnership, general partners are liable for the partnership’s obligations during the period when the general partner is a member of the partnership.

In this case, if the partnership between Adam, Tim, Martin and Kathy is limited, then the partners are not liable for the debt incurred as a result of the actions by Adam. However, there is an exception of any general partners. Such partners will be liable for the debt incurred. If the partnership was not unlimited, then the partners will be liable to pay the debt incurred, except for the limited partners. Partners with limited liability are not liable the partnership’s debts and their personal items can never be used to cover such obligations.

Since Adam did not consult the other partners before making the order, he did not have the authority to make the transaction. However, from the case, it is evident that the intention of Adam was to enhance the services of the partnership in providing health and fitness services. It seems that Adam assumed that since the purchase would enhance the provision of fitness services by their firm, the other partners would not have any problem. Adam also made this decision based on the availability of the exercise and spin bikes. According to the case, the bikes could be a fine addition, but were in limited supply. This presents a case of liability of partners brought about by actions of other partners.

According to the partnership act 1963 (s16), all partners will be liable for the actions of other partners in the firm, as long as they are members of the partnership. The section explains that the liability holds regardless of whether the actions were right or wrong. However, this excludes the limited partnership where the partners are not held liable. A general partner in a limited partnership will be held liable for any obligations or debts incurred by the firm while the partner was a member. However, the extent of the liability of the general partners depends on the extent to which the partnership can honor the obligation or the partnership agreement (s16, Partnership Act 1963).

In this case, all partners except the limited partners will be liable for the debt incurred by Adam on behalf of the partnership. The partners have viewed the action by Adam to order the bikes quite differently. Tim feels it is a good move and is willing to pay. However, Martin and Kathy feel that Adam did not have the authority to order the bikes, and is liable for the debt alone. The partnership that the four partners have is binding to all depending on the type of partners. Irrespective of whether the action by Adam was wrong or right, all partners except for the limited partners are liable for the debt incurred. If Martin and Kathy are general partners, they will be liable for the actions by Adam irrespective of whether or not he sought consent from the other partners.

Question two

It is evident from the case that the actions of Martin resulted into significant loss of income for Sam and medical expenses. The spinal manipulation services offered by the clinic led to deterioration of the condition of Sam to the extent that he had to undergo a major back surgery. The reason that Sam sought the services of the clinic in the first place was to get fit again and continue playing football. However, the footballer could not play football for two seasons following the actions of the clinic.

According to the partnership act 1963 (s12), the actions of one or more partner bind the whole partnership except for a limited partnership. However, if the act contravenes the agreement of the partnership then the act will not bind the partners. A partnership can place restrictions on the power of any one or more partner to bind the firm through his or her actions.

Depending on the agreement, the partnership can treat the case differently. According to Tim and Kathy, the condition of Sam deteriorated because Martin was using a treatment method that the clinic does not practise. Depending on the partnership agreement, this action can either be binding or not binding. The agreement may stipulate that such an act goes contrary to the code of conduct of the partnership. In this case, the partners are not liable for the actions of Martin. If the agreement does not specify the nature of such an act, the partners will be liable for the conduct of Martin. In this case, the liability of partners holds.

The Partnership Act 1963 (s13) stipulates that partners in a firm other than a limited partnership will be liable for all debts that the company incurs, or any obligations of the company during the period that they are partners. The section specifies that even after the death of a partner, his or her estate will be used to cover any debts incurred by the partnership when the partner was living and a member of the partnership (s13, Partnership Act 1963). In case of a limited partnership, general partners are liable for the partnership’s debts during the period when the general partner is a member of the partnership.

If the actions of Martin are binding, then all partners will be liable except for the limited partners. This applies to partnership that is not limited. However, for a limited partnership, the partners will not be liable except for the general partners. If both Tim and Kathy are general partners, they will be liable for the actions of Martin. If they are limited partners, then they will not be liable.

Section 16 indicates that the partnership is liable for the actions of one or more partners. The section provides that such an action irrespective of the nature of actions. The sections explains that apart a limited partnership, all partners are jointly liable for the actions of other partners. Even in a limited company, the general partners are held liable for any actions by one or more partners.

Depending on the type of partnership between three, Tim and Kathy may or may not be liable for the actions of Martin. It is not clear on the nature of the actions of Martin. He may have used the method for personal gains or may have used it as the best method available. If the partnership between the two is limited, then Tim and Kathy are not liable for the actions of Martin. If the partnership is not limited, then all the partners are liable except for the limited partner. If they are general partners, they will be liable even if the partnership is limited.

The partnership’s agreement will be the determining factor as to whether the actions by Martin are binding. If the action contravenes the agreement, then it will not be binding for the partnership. In this case, the two partners will not be liable for the actions of Martin. On the other hand, if the agreement is not clear on the nature of the actions, then it will be binding for all the partners and they will be liable jointly.

Question three

According to the case, we can say that Martin leaves the partnership at will. The withdrawal of Martin from the partnership has many implications on the partnership. The most significant one concerns liability. The liability of the partner does not change following the withdrawal. This liability pertains to the debts and obligations incurred during the term that the partner was a member of the partnership. If Martin was a general partner, then he is liable for any debts incurred during the time when he was in the partnership.

If a partner leaves a partnership that is limited, then the retirement does not change the liability of the partner. For instance, if the partner was liable for any debt incurred during the time he or she was in the partnership, then he or she remains liable (s21, Partnership Act 1963). However, the remaining partners may decide to discharge an outgoing partner from existing liabilities, if any. This can be arranges through an agreement by creditors, investors and the remaining partners. Such an agreement may be either inferred or express between the partnership and the creditors.

In this case, Martin will be liable for any debts that the partnership incurred during the time that he was a partner. Leaving the partnership alone does not relieve him of such liabilities. This, however, depends on the type of partner and partnership. If martin was a general partner, then he will still be liable for any debts incurred while he was still a partner. In this light, his personal property may be taken to cover the debts if need arise. If Martin was a limited partner then he was not liable for any debts of the firm. However, if the partnership was a limited, Martin would still be liable if he had any liability as a partner.

According to section 21, if a new person is admitted to an existing partnership, except for a limited partnership, will not assume liability for any debt that was incurred before the partner was admitted. If the partner is admitted as a general partner, then he or she does not automatically become liable for obligations before he or she joined the partnership. If a partner changes their status from limited to general, then he or she will not be liable for any debts incurred before the partner became a general partner (s21, Partnership Act 1963).

In the case, Erika joining the firm will not have an effect on the existing liabilities. She will not be liable for debts that the partnership incurred before she became a partner. For instance, Erika will not be liable for any debts that the outgoing partner incurred. Instead, Martin will be liable for such debts. This means that whatever type of partner Erika will assume; she will not be liable for past debts.

Since Erika will be entering an existing partnership with existing rules and agreements. She will enter the partnership by these rules and agreements. This means that she must abide by the agreement or be penalized. However, after joining the partnership, she will have the authority to take part in decision making and making of rules if need arises. Martin, on the other hand, will have no authority in the partnership (Partnership Act 1963, 2012)

Partnership Act 1963. (2012, May 28). Retrieved March 11, 2013, from www.legislation.act.gov.au