SQE1 partnership law: what you must know and how it is tested

SQE1 partnership law questions test the default rules of the Partnership Act 1890, the personal liability of partners, and the difference between a general partnership and a limited liability partnership. Know the default rules, because they apply whenever the partners have not agreed otherwise. Read it with the wider Business Law and Practice guide.

The rules to apply

A partnership is the relation between persons carrying on a business in common with a view of profit (s1). It can arise without writing or registration. Sharing gross returns does not alone create one (s2). A general partnership has no separate legal personality in England and Wales. Partners are liable for the firm's debts without limit: jointly for contract debts, and jointly and severally for wrongs (ss9 to 12).

Each partner is an agent of the firm. Acts done in the usual way of business of the kind carried on bind the firm (s5), unless the third party knows the partner has no authority or does not know or believe the person is a partner. A person who holds himself out as a partner can be liable as one (s14). A new partner is not liable for debts incurred before joining (s17).

The default terms in s24 apply if there is no agreement: equal shares in capital and profits whatever the contribution, no salary, an indemnity for partners' outlay, every partner may take part in management, ordinary matters are decided by majority, and a new partner or a change in the nature of the business needs everyone's consent. Majority cannot expel a partner. The partnership dissolves on the death or bankruptcy of a partner unless the agreement says otherwise (s33), or by court order (s35).

A limited liability partnership under the Limited Liability Partnerships Act 2000 is a body corporate. It has its own legal personality, and members' liability is limited, but it must be incorporated and file documents at Companies House.

Traps examiners use

• Treating profit share as following capital. By default profits are shared equally.
• Saying the firm is not bound because the partners agreed a limit that the outsider did not know about.
• Making a new partner liable for old debts. Not by default.
• Confusing partnership with LLP: only the LLP is a separate legal person with limited liability.

Worked question 1

Ahmed, Bea and Chen run a business as partners with no written agreement. Ahmed put in £60,000 of capital and Bea and Chen £20,000 each. Chen works full time and the others work part time. How are profits shared?

• A. In proportion to capital, so Ahmed takes 60%.
• B. In proportion to work, so Chen takes the largest share.
• C. Equally, one third each, under the default rule in the Partnership Act 1890.
• D. As the court thinks fair, because there is no written agreement.
• E. Ahmed takes a return on his capital first and the rest is shared equally.

Answer: C. Section 24 of the Partnership Act 1890 provides equal shares in profits unless otherwise agreed. Capital and work do not change that. A and B reflect what many candidates assume. D is wrong because the Act supplies the rule. E would need an agreement, since there is no default interest on capital.

Worked question 2

Dev is a partner in Fold & Co, a firm of printers. The partners agreed between themselves that no partner may buy stock over £5,000 without consent. Dev orders paper worth £12,000 from a supplier who knows nothing of the limit. Dev did not seek consent. Which statement is correct?

• A. The firm is not bound, because the partners' agreement limited Dev's authority.
• B. The firm is bound, because buying paper is in the usual way of business and the supplier had no notice of the limit.
• C. Only Dev is liable, because he broke the partnership agreement.
• D. The firm is bound only if the other partners ratify the order.
• E. The supplier can claim only £5,000 from the firm.

Answer: B. Under s5 an act done in the usual way of business binds the firm unless the third party knows of the lack of authority. The supplier did not. The partners can claim against Dev among themselves, but that does not defeat the supplier's claim. A and C ignore s5, and D and E invent a requirement.

Checklist before you move on

• Is there a business carried on in common with a view to profit?
• Is there an agreement that changes the s24 defaults?
• Was the act within the usual way of business, and did the outsider have notice?
• Who is liable, and for what period (joining, leaving, holding out)?
• Is it a general partnership or an LLP?

Test yourself on more original questions in our SQE1 practice questions.

Questions

Related

• SQE1 Business Law and Practice
• SQE1 practice questions: how to answer single best answer items
• SQE1 mock: how to time, pace and review it

Sources: SRA: SQE1 Assessment Specification (from 1 September 2026); Partnership Act 1890; Limited Liability Partnerships Act 2000. Checked 10 November 2026.