ExpertMedium2 marksMultiple Choice
The formation and constitution of business organisationsSyllabus DBusiness OrganisationsPartnershipsLiability
ACCA · Question 11 · The formation and constitution of business organisations
Section A
Three individuals form a traditional general partnership to run a veterinary clinic. One partner, David, retires. The remaining two partners continue the business. Six months later, a supplier sues the partnership for an unpaid invoice relating to goods ordered while David was still a partner. What is David's liability regarding this debt?
Section A
Three individuals form a traditional general partnership to run a veterinary clinic. One partner, David, retires. The remaining two partners continue the business. Six months later, a supplier sues the partnership for an unpaid invoice relating to goods ordered while David was still a partner. What is David's liability regarding this debt?
Answer options:
A.
David has no liability because he is no longer a partner.
B.
David remains jointly liable for the debt because it was incurred before his retirement.
C.
David is only liable if the remaining partners become insolvent.
D.
David is severally liable for one-third of the debt.
How to approach this question
Recall the rules on partner liability upon retirement under the Partnership Act 1890.
Full Answer
B.David remains jointly liable for the debt because it was incurred before his retirement.✓ Correct
Under s.17 of the Partnership Act 1890, a partner who retires from a firm does not thereby cease to be liable for partnership debts or obligations incurred before their retirement. They can only be discharged by an agreement (novation) between themselves, the new firm, and the creditors.
Common mistakes
Assuming that leaving a business automatically severs all past liabilities.
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