Business Association

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1. Partnership is the relation which subsists between persons carrying on a business in common with a view of profit, under s3 of the Partnership Ordinance (“PO”).

Partnership Agreement
Partnership agreement is essential for the partnership. An oral agreement is sufficient to create a partnership however it is advisable for the partnership be in a form of written agreement. S26 of the PO implies the rights of the partners and it can be regarded as a sample partnership agreement. They are: (1) a right to share profits and losses equally; (2) a right to be indemnified by the firm for liabilities or payments made in the normal course of business; (3) partners are not entitled to receive a salary in additional to their profit share unless the partnership agreement says otherwise; (4) the introduction of new partners requires the consent of all partners; (5) a right to take part in decision making; (6) disputes are to be decided by a majority except for decisions that involve changes to the nature of the partnership business and (7) partners are entitled to inspect the books and accounts. Limited Partnership

In general, all partners of the firm are liable to an unlimited extent to the creditors of the business. In case of a limited partnership, each partner is liable for all the firm’s debts, that is, if one person is liable, all are liable. At least one partner must remain fully liable and limited partners lose protection if they take part in the management of the business. A partner remains liable for debts incurred while she was a member of the partnership unless the partners or creditors agree to release her.

Partners may bind the firm
Every partner is an agent of the firm and of the other partners for the purposes of the partnership business (s7 of the PO). A partner may bind the firm under an express authority, which will be written in partnership agreement. Also, it may be an usual or implied authority which acts within the usual course of the firm’s business (Mercantile Credit Co Ltd v Garrod [1962]), and an apparent authority where a partner is “held-out” by the other partners to a third person as having the power to contract with that person (s16 of the PO).

Registration
The name of partnership should be registered with the Business Registration Office of the Inland Revenue Department (“IRD”) under the Business Registration Ordinance and obtain a business registration certificate from IRD.

2. There are various methods to terminate an agreement. First of all, a partnership may be dissolved at any time by the mutual consents of all partners. Under the consents of all partners, the partnership can be dissolved even though the termination date set out in the partnership agreement has not been reached yet. Also, if the fixed term as stated in the partnership agreement comes to an end and no new agreement is signed, the partnership will be automatically ended.

Secondly, if there is some specified events occurred which set out in the partnership agreement, the partnership may be dissolved. For example, the agreement can be terminated if one partner emigrates from Hong Kong or dishonesty of partners to another.

Thirdly, under section 28 of the Partnership Ordinance (“PO”), the partnership can be dissolved under the intention of the partners. If the agreement has no fixed term for the expiry of the partnership, partners can give notice of intention to other partners on the dissolution of the partnership.

Fourthly, subject to the partnership agreement, the partnership is dissolved if it entered into a fixed term which is predetermined when the agreement is signed (s34(1)(a) of the PO). If the termination date is undefined, any partners shall have a right to give notice of their intention to other partners to dissolve the partnership (s34(1)(c) of the PO). Also, under s35(1) of the PO, every partnership is dissolved if any partners die or go bankrupt, though this is subject to a contrary intention in...
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