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Types of business organisation

Who is liable?

 Generally, every partner is jointly and severally liable for debts and contracts

 New partners are not liable personally for debts incurred before they became a
partner

 Retiring partners remain liable for debts incurred while they were partners. If no
notice of retirement is given, the firm continues to be bound by the retired
partner as he is being held out as a partner.

 In addition the partner will continue to be liable for the ongoing debts of the
business until notice of his retirement is given

 If there is a change of partners and a third party deals with the partnership after
the change, the partners of the old firm remain liable unless the third party has
notice of the change

 A ‘novation’ occurs where a creditor agrees the liability on the debt will be that
of the continuing or incoming partner, not the outgoing partner

 The incoming or continuing partners may agree to indemnify the outgoing
partner against any debts incurred prior to retirement.

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