Disadvantages of Proprietorship
Unlimited liability to creditors including vicarious liability for torts committed by
No opportunity to defer income for tax purp
No opportunity to get capital from other investors. (Personal borrowing is the
only source of additional capital.
Two or more people carrying on business in common with a view towards
Splitting profit or revenue net of expenses is a partner.
Partnership is presumed when:
o Both partners contribute capital
o Intention to share expenses, profits, losses.
o Joint participation inmanagement of business.
Effect on NonPartners:
Whether or not two or more people are partners has an effect on people or
organizations outside the partnership
Parties can sar to each other that they are not partners, but if they hold themselves
out as partners they can be liable to third parties.
Partners are Agents:
Each partner is the agent of the other partners and as such can bind them in
Proviso is that the contract must involve the business of partnership
Partners are also liable in tort for the negligent or intentional conduct of their
partners and employees in business activities.
Partnership Act limits the liability of partners for beach of trust (e.g stealing trust
funds) to circumstances where they have knowledge.
Therefore important for the partnership to have excellent liability insurance. Unlimited Liability:
If the assets of the partnership are not enough to pay the claims of creditors or
injured parties, the partners personal assets are at risk.
Claimants can sue any of the partners. The partner sued may then claim against
the other partners in the same proportion as they share in the profits.
Retired partners remain liable to third parties for liabilities incurred while they