CHAPTER 1 • BUSINESS FORMS AND THE CORPORATE LAW FRAMEWORK

Business Forms, Historical Development of Company Law, Regulatory Overview and ASIC

Week 1 Forum / LectureTutorial 1 - Week 2Queensland partnership lawAustralian Corporate Law foundations

Chapter purpose. Corporate Law makes far more sense when students first understand what incorporation changes. This chapter therefore starts before the company exists. We compare the sole trader, ordinary partnership, trusts and other structures, then use the partnership as the main comparator for the company. From there we explain the historical move from royal privilege to incorporation by registration, the constitutional path to the national Corporations Act 2001 (Cth), and the different roles of ASIC and ASX. The goal is not memorising labels. The goal is learning how structure changes ownership, management, authority, liability, continuity, capital and regulation.

Teaching flow: business objective -> legal structure -> who owns -> who controls -> who can bind -> who is liable -> what legislation governs -> what authority explains the rule -> how the rule changes once a company is incorporated.

1.1 Start with the commercial problem, not the company form

A good corporate lawyer does not begin with the sentence, "You should form a company." The lawyer begins by asking what the client is trying to achieve. A small founder may want complete control and low compliance costs. A growing enterprise may need outside capital, continuity after the founder leaves, a way to transfer ownership, professional management and protection from business liabilities. Those objectives can point in different directions.

That is why the first issue-spotting skill in Corporate Law is structural. Before applying a section or citing a case, identify the legal vehicle through which the business is operating. If you misidentify the structure, almost every later conclusion can be wrong: who owns the assets, who entered the contract, who can make decisions, whose property a creditor can reach, whether an investor can transfer an interest, and which statute applies.

Issue-spotting trigger. When a problem says "business", "firm", "practice", "venture" or a trading name, do not assume there is a company. Ask: what is the legal structure? A trading name is not a legal person. A partnership is not ordinarily a separate legal person. A company is.

1.2 Choosing a business structure: the questions that matter

Question	Why a corporate lawyer asks it
How many owners are there?	This affects whether a sole trader, partnership, company, trust or hybrid structure is even workable.
Who should control decisions?	Partnerships generally fuse ownership and management; companies can separate shareholders from directors and officers.
How will capital be raised?	A founder may rely on personal borrowing; a partnership pools partner capital; a company can issue shares and debt securities subject to the Corporations Act.
Who should bear business risk?	Sole traders and general partners may face personal exposure. Company members ordinarily receive a limited-liability position, but the company itself bears its liabilities.
Does the business need continuity?	A registered company can continue despite changes in shareholders and directors. That continuity is valuable for long-lived enterprises.
Will ownership need to change?	Shares provide a legal mechanism for transferring participation, while partnership interests are less freely transferable.
How much privacy and compliance is acceptable?	Different structures have different registration, disclosure, accounting and governance burdens.
Are different activities exposed to different risks?	Later chapters show why companies and corporate groups may be used to separate projects, assets and liabilities.

1.3 Sole trader: the baseline comparison

A sole trader is the simplest model because the individual and the business are legally the same person. The individual owns the assets, enters the contracts, receives the income and bears the liabilities. This gives direct control and simplicity, but it also means that business obligations can become personal obligations.

The sole trader matters in Corporate Law because it shows what incorporation later changes. When a sole trader incorporates, the business is no longer merely the individual acting commercially. Registration creates another legal person. Chapter 2 will show how that new person can own assets, incur debt and contract even with its own founder.

1.4 Partnership: the essential comparator

The Week 1 teaching deliberately spends time on partnerships because a partnership makes the distinctive features of a company easier to see. In a traditional partnership, ownership and management are generally fused. Partners carry on the business, make decisions, can bind the firm through agency principles and may be personally exposed to partnership liabilities. A company disaggregates many of those functions.

Partnership Act 1891 (Qld), s 5(1). Partnership is the relationship that exists between persons carrying on a business in common with a view of profit. Each part matters: there must be persons, a business, carrying on in common, and a profit objective. The provision defines a legal relationship; it is not enough that parties casually call themselves partners or deny that they are partners.

1.4.1 Formation and the importance of substance over labels

An ordinary partnership can arise through an express written agreement, an oral agreement or conduct. Section 6 supplies rules for deciding whether the partnership relationship exists. This is why students should avoid saying that partnership formation is "purely contractual" in an absolute sense. Agreement is central, but the court looks at the substance of what the parties are doing.

Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321

Facts. Two companies entered an arrangement concerning the financing and promotion of concert appearances. Their agreement described the relationship as a "joint venture". Profits were to be divided equally, major policy decisions required joint agreement, and the parties were financially interdependent.

Issue. Did the label "joint venture" prevent the relationship from being characterised as a partnership?

Reasoning and outcome. The High Court looked at the substance of the arrangement rather than the label. The commercial enterprise, profit sharing, joint control and other features pointed toward partnership.

Why it matters. Canny Gabriel teaches one of the most transferable skills in Corporate Law: legal characterisation depends on legal substance, not merely the name parties put on an arrangement.

Exam use. Cite it when facts look partnership-like but the parties use another label, especially "joint venture".

1.4.2 Internal management: who makes the decisions?

Section 27 contains important default rules about partners' interests and duties, subject to agreement. Section 27(1)(e) gives every partner a right to take part in management. Section 27(1)(g) requires all existing partners to consent before a new partner is introduced. Section 27(1)(h) allows ordinary matters connected with the partnership business to be decided by majority, but a change in the nature of the partnership business requires unanimity.

These provisions matter because they show the default fusion of ownership and control. The same partners who own the partnership interests ordinarily manage the enterprise. Chapter 2 contrasts this with the corporate form, where members and directors are distinct legal roles even when the same human being happens to wear both hats.

1.4.3 Authority and agency: can one partner bind everyone else?

This is where students frequently conflate two different questions. First ask whether the firm was bound. Only then ask who bears liability for the resulting obligation.

Sections 8-11. Section 8(1) treats every partner as an agent of the firm and the other partners for partnership business. An act done in the usual way of business of the kind carried on by the firm can bind the firm, subject to the statutory qualifications. Section 9 deals with acts or instruments done in the firm name or otherwise showing an intention to bind the firm. Section 11 is crucial where the partners privately restrict a partner's authority: the restriction does not protect the firm against an outsider who has no notice of it.

Issue-spotting sequence. (1) What business does the firm carry on? (2) Was the act within the usual way of that business? (3) Did the partner have actual or apparent statutory authority? (4) Did the outsider know of a restriction? (5) Only after that, identify the liability rule.

1.4.4 Liability: ordinary debts are not the same as partnership wrongs

The distinction matters in Queensland. Section 12(1) provides that every partner is jointly liable with the other partners for debts and obligations of the firm incurred while that person is a partner. By contrast, ss 13 and 14 deal with wrongful acts or omissions and certain misapplications of money or property, and s 15(1) makes partners jointly and severally liable for liabilities arising under those provisions.

So the safe legal answer is not "partners are always jointly and severally liable." For an ordinary contractual debt, start with s 12(1). For a wrong or misapplication falling within ss 13-14, move to s 15.

Plain-English example. If one partner validly orders equipment for the architecture firm, s 8 may bind the firm and s 12 governs the resulting ordinary debt. If a partner negligently injures a client in the ordinary course of partnership business, s 13 can make the firm liable and s 15 can expose partners jointly and severally.

1.4.5 Partnership property and private interests

Section 23 requires partnership property to be held and applied by the partners exclusively for partnership purposes and in accordance with the partnership agreement. This is another reason not to speak loosely about a "firm" as if it were always a company. In an ordinary partnership, the legal structure of property ownership is fundamentally different from the separate-entity model introduced in Chapter 2.

1.4.6 Fiduciary loyalty: partnership is not only about debt

Partnership law also imposes loyalty obligations. Sections 31-33 address accounts, private profits and competition with the firm. These statutory obligations sit alongside equitable fiduciary principles.

Chan v Zacharia (1984) 154 CLR 178

Facts. Two doctors had carried on a medical practice in partnership from leased premises. After the partnership relationship broke down and was being wound up, one doctor obtained a new lease of the premises for himself.

Issue. Could the opportunity connected with the former partnership premises be appropriated personally, or did fiduciary obligations continue to control the opportunity during winding up?

Principle. The High Court's reasoning is a leading explanation of fiduciary conflict and profit principles in the partnership setting. The content of the duty depends on the scope of the relationship and can continue so far as necessary to wind up partnership affairs.

Why it matters. The case teaches students that partnership is a relationship of trust and loyalty as well as agency and liability. It also foreshadows later directors' duties: corporate law repeatedly asks whether a decision-maker used a position or opportunity for personal advantage.

1.4.7 Can partnership risk be reduced?

Yes, but the techniques are not identical to corporate limited liability. Partners can agree internally on authority, contribution and indemnity, but internal agreement does not automatically defeat an outsider's rights. Queensland also recognises limited partnerships. Section 53 limits a limited partner's contribution to the registered amount, while s 60 restricts the limited partner from taking part in management and from binding the firm. The protection is therefore linked to a reduced management role.

For larger enterprises, incorporation may be commercially attractive precisely because it separates the entity's liabilities from the member's ordinary position as investor. That is the bridge into Chapter 2.

1.5 Other structures: trusts, associations and hybrids

A trust separates legal and beneficial interests: the trustee holds and deals with property for beneficiaries or permitted purposes. In commercial practice a company may act as corporate trustee. Incorporated associations and co-operatives are statutory forms used for particular purposes. Real enterprises often combine structures - for example, a trust may own shares in a company, a company may act as trustee, or a holding company may own operating subsidiaries.

The teaching point is not to turn Chapter 1 into a complete trusts course. It is to train students to identify the legal person, the legal capacity in which that person acts, and the statute or general-law rule governing that capacity.

1.6 Why companies developed: from privilege to registration

Historically, incorporation was exceptional. Early corporations such as boroughs, universities, guilds and major trading enterprises existed through royal charter, statute or other public authority. Their corporate status was valuable because property and institutional identity could continue beyond the death or replacement of particular human participants.

As commerce and industrialisation expanded, enterprises needed much larger pools of capital. Joint-stock arrangements emerged to combine investment, transferable interests and centralised management even before general incorporation was freely available. The economic pressure was obvious: railways, factories, shipping and major infrastructure required more capital than a small partnership could easily supply.

The Joint Stock Companies Registration and Regulation Act 1844 (UK) marked the shift toward incorporation by registration; limited liability followed in 1855. The conceptual transformation is crucial: incorporation moved from a special privilege conferred on selected enterprises toward a generally available legal technology for organising capital and risk.

1.7 The Australian constitutional path to the Corporations Act 2001

The Commonwealth Constitution gives the federal Parliament power with respect to "foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth" in s 51(xx). The words "formed within" became important. Historically, company formation and regulation remained substantially State-based.

Huddart, Parker & Co Pty Ltd v Moorehead (1909) 8 CLR 330

Why it matters historically. The case was associated with a narrow early understanding of the corporations power. It helps explain why Australia did not simply begin with a single comprehensive federal companies statute.

Australia then experimented with uniform and co-operative schemes. The difficulty was maintaining real national uniformity while the laws remained State-based or relied on complex interlocking arrangements.

New South Wales v Commonwealth (the Incorporation Case) (1990) 169 CLR 482; [1990] HCA 2

Issue. Could s 51(xx) support Commonwealth legislation creating trading and financial corporations?

Outcome and significance. The High Court held that the corporations power did not itself extend to the incorporation of those corporations. That meant a fully national scheme could not simply rest on s 51(xx) as a power to create companies.

Why students need it. The case explains why Australia's current national Corporations Act depends on a referral architecture rather than on s 51(xx) alone.

The Queen v Hughes [2000] HCA 22; (2000) 202 CLR 535

Context. Constitutional difficulties arose around the co-operative Corporations Law scheme, including the conferral of State functions on Commonwealth officers and institutions.

Why it matters. Hughes forms part of the constitutional crisis that made a more secure national arrangement urgent. The States then referred relevant powers to the Commonwealth under s 51(xxxvii), supporting the present Corporations Act 2001 (Cth) and ASIC Act 2001 (Cth).

Exam trigger. If a question asks why Australia has a Commonwealth Corporations Act even though incorporation was historically State law, connect: s 51(xx) -> limits exposed by the Incorporation Case -> problems in the co-operative scheme -> referrals under s 51(xxxvii) -> Corporations Act 2001.

1.8 ASIC and ASX: do not confuse the regulator with the market operator

Section 1 of the ASIC Act 2001 (Cth) sets the Act's objects, including establishing ASIC and describing the goals ASIC must pursue when performing its functions. Section 8 provides that ASIC is a body corporate. Section 11 gives ASIC the functions and powers conferred under the corporations legislation, while s 12A confers additional functions, including market-integrity and consumer-protection functions in the Australian financial system.

ASIC's work includes company registration and deregistration, maintaining corporate information, surveillance, licensing functions in relevant areas, investigating suspected contraventions and taking enforcement action. For students, the key point is that ASIC is a public statutory regulator.

ASX, by contrast, is a market operator. Listed entities are subject to the Corporations Act and ASIC's regulatory framework, but they also operate within the ASX Listing Rules and associated guidance. A company can therefore be regulated simultaneously by statute, regulator and market rules.

ASIC	ASX
Statutory regulator established under Commonwealth legislation.	Licensed market operator running securities markets.
Administers and enforces laws that confer functions and powers on it.	Applies Listing Rules and market requirements to listed entities and participants.
Registers companies and maintains corporate information.	Does not create a company merely because securities are quoted on its market.

1.9 Sources of Corporate Law: learn the hierarchy

A reliable Corporate Law answer moves from proposition to authority. The core hierarchy is current legislation, binding case law, regulator and market rules where relevant, persuasive authority, then commentary. Textbooks and summaries are excellent teaching tools, but they do not replace the legal source.

Research habit. State the proposition in plain English -> identify the exact Act and section -> read the operative words -> identify the leading case interpreting or illustrating the rule -> explain why that authority matters -> then apply the rule to the facts.

1.10 Issue-spotting method for Chapter 1

Fact trigger	Issue	Law / authority
People run a business together for profit, but deny they are partners.	Does a partnership exist?	Partnership Act ss 5-6; Canny Gabriel.
One partner signs a contract without consulting the others.	Did the partner bind the firm?	ss 8-11; agency before liability.
Supplier seeks payment for ordinary firm debt.	Who is liable?	s 12(1): joint liability.
Client suffers loss from a partner's wrongful act.	Firm liability and partner exposure.	ss 13-15; joint and several liability under s 15.
Partner appropriates opportunity or private profit.	Fiduciary / statutory loyalty.	ss 31-33; Chan v Zacharia.
Question asks why national corporate law required constitutional reform.	Federal constitutional foundation.	Constitution ss 51(xx), 51(xxxvii); Incorporation Case; Hughes.
Question refers to listed company disclosure or market rules.	ASIC or ASX?	ASIC Act / Corporations Act versus ASX Listing Rules.

1.11 Frequently Asked Questions

FAQ 1 - Is a partnership a separate legal person?
No, not an ordinary partnership. The partnership is a legal relationship among the partners. Incorporated limited partnerships are a statutory exception.

FAQ 2 - Does calling an arrangement a joint venture prevent partnership?
No. Canny Gabriel shows that the court examines substance. Shared profit, joint control and the overall relationship may support partnership despite the label.

FAQ 3 - What is the cleanest order for analysing a partner's contract?
First authority under ss 8-11. Then liability under ss 12-15. Do not collapse those questions.

FAQ 4 - Are partnership debts always joint and several?
No. Section 12(1) uses joint liability for ordinary debts and obligations. Section 15 uses joint and several liability for liabilities arising under ss 13-14.

FAQ 5 - Can partners change the statutory rules?
Many internal default rules can be varied by agreement, but private arrangements do not automatically defeat outsider rights.

FAQ 6 - Why learn partnership law in Corporate Law?
Because it exposes what a company changes: separate personality, allocation of management, transferability, continuity, capital formation and limited liability.

FAQ 7 - Why is Chan v Zacharia useful?
It teaches how fiduciary obligations constrain a partner's use of opportunities connected with the partnership and foreshadows directors' fiduciary duties.

FAQ 8 - Why did Australia need State referrals of power?
The Commonwealth's corporations power did not itself provide a secure power to create all companies. The referral mechanism under s 51(xxxvii) supported the modern national scheme.

FAQ 9 - Is ASIC the stock exchange?
No. ASIC is a statutory regulator. ASX is a market operator with Listing Rules.

FAQ 10 - Is history examinable just because it is in the chapter?
Course emphasis controls assessment, but the history explains why the present legal architecture looks the way it does. It should be used to understand, not merely memorise dates.

1.12 Multiple Choice Questions

A and B call their agreement a "joint venture", share net profits equally and jointly decide major policy. What is the best approach?
A. The label is conclusive.
B. Apply ss 5-6 and examine substance, including Canny Gabriel.
C. A partnership only exists after ASIC registration.
D. A partnership must have a written deed.
Answer: B. Partnership characterisation turns on the statutory relationship and substance, not the label.
Which provision is the starting point for a partner's power to bind the firm in ordinary partnership business?
A. s 8 Partnership Act 1891 (Qld)
B. s 12
C. s 15
D. s 181 Corporations Act
Answer: A. Section 8 addresses partner agency and the power to bind the firm.
An ordinary contractual debt validly incurred by the firm is governed principally by:
A. s 12 joint liability
B. s 15 joint and several liability
C. s 516 Corporations Act
D. s 588G
Answer: A. Section 12(1) is the starting point for ordinary firm debts and obligations.
A partner negligently advises a client in the ordinary course of the firm's business. Which combination is most relevant?
A. ss 13 and 15
B. ss 8 and 12 only
C. s 119 Corporations Act
D. s 51(xx) Constitution
Answer: A. Section 13 addresses firm liability for the wrongful act; s 15 makes the partners jointly and severally liable for that liability.
Why is Chan v Zacharia important here?
A. It establishes ASIC.
B. It illustrates partnership fiduciary obligations and opportunities.
C. It creates companies by registration.
D. It defines a public company.
Answer: B.
The Incorporation Case is most important for understanding:
A. dividend taxation
B. why the Commonwealth needed a referral-based foundation for the national scheme
C. partnership agency
D. listed-company disclosure
Answer: B.
ASIC is best described as:
A. Australia's stock exchange
B. a statutory regulator with functions under the corporations legislation and other financial-system laws
C. a private professional body
D. a court
Answer: B.
The ASX Listing Rules are most directly relevant when:
A. a sole trader registers an ABN
B. an entity is listed or seeking listing on ASX
C. two doctors form a partnership
D. ASIC prosecutes an offence
Answer: B.
A private partnership agreement says Lee cannot spend over $20,000, but an unaware supplier receives a usual-business order for $45,000. Which provision makes the outsider's notice important?
A. s 11 Partnership Act
B. s 516 Corporations Act
C. s 119 Corporations Act
D. s 51(xxxvii) Constitution
Answer: A.
Which statement best captures the Chapter 1 method?
A. Memorise case names first.
B. Identify the legal relationship, then authority, liability and consequence.
C. Always recommend incorporation.
D. Treat every business as a company.
Answer: B.

Open Chapter 1 interactive crossword Chapter 1 crossword answers

1.13 Tutorial 1 - Full Questions and Teaching Answers

Question 2A - Who owns a partnership?

The partners collectively carry on the partnership business. An ordinary partnership is not a separate legal person like a company. Partnership property is held and applied for partnership purposes under s 23. In an exam, avoid saying "the firm owns it" without explaining the legal structure.

Question 2B - Is everyone who works within a partnership a partner?

No. Apply s 5(1) and the rules in s 6. Employees, contractors and managers can work in the business without satisfying the statutory relationship. Profit-linked remuneration is relevant but not automatically conclusive.

Question 2C - How is a partnership formed?

It can arise by express agreement, oral agreement or conduct when the statutory relationship exists. Canny Gabriel demonstrates why substance is more important than the label chosen by the parties.

Question 2D - Where do the partnership rules come from?

Start with the Partnership Act 1891 (Qld), then the partnership agreement, and then relevant case law and equitable fiduciary principles. Sections 22 and 27 show that many internal default rules are subject to agreement. But external rights cannot always be contracted away, especially where an outsider lacks notice of an internal restriction.

Question 2E - Who manages a partnership?

By default the partners. Section 27(1)(e) gives every partner a right to participate in management; s 27(1)(h) deals with majority decisions on ordinary matters and unanimity for a change in the nature of the business; s 27(1)(g) requires consent for a new partner. The agreement can modify many of these defaults.

Question 2F - Who can contract for the firm?

Agency is the key. Section 8(1) makes each partner an agent of the firm and other partners for partnership business. Sections 9-11 refine how the firm is bound and how restrictions operate. Always analyse authority before liability.

Question 2G - Who is liable for partnership debts?

For ordinary debts and obligations, s 12(1) imposes joint liability. For firm liabilities arising from the wrongs and misapplications covered by ss 13-14, s 15 imposes joint and several liability. General partners can therefore face personal exposure beyond the value of their investment.

Question 2H - Can one partner expose the others?

Yes. If a partner validly binds the firm under the agency provisions, the resulting liability can extend to the other partners under the relevant liability provision. Section 20 also matters when membership changes because timing affects exposure to obligations.

Question 2I - How can partnership risk be mitigated?

Internal authority limits, indemnities, contribution arrangements and insurance can reduce risk, but they do not necessarily defeat outsider claims. Limited partnerships can cap a limited partner's contribution under s 53, but s 60 restricts the limited partner's management role. Incorporation may be preferable where stronger separation between investor and enterprise liabilities is needed.

1.14 Full Constructed IRAC Model Answer - Partner Authority and Liability

Problem. Lee, one of three partners in an architectural partnership, orders $45,000 of specialist modelling equipment in the firm name. The partnership agreement requires unanimous approval for expenditure above $20,000. The supplier has dealt with the firm before but has never seen that agreement. The firm refuses to pay.

Issue

The main issue is whether Lee had authority to bind the partnership to the purchase despite breaching the internal spending restriction. If the firm is bound, the second issue is which partners are liable for the resulting ordinary contractual debt. A further internal issue is whether Lee breached the partnership agreement and may owe contribution or indemnity to the other partners.

Rule / Law

Under Partnership Act 1891 (Qld) s 8(1), every partner is an agent of the firm and of the other partners for the purposes of the partnership business. A partner's act done for carrying on in the usual way business of the kind carried on by the firm ordinarily binds the firm unless the partner in fact lacks authority and the person dealing with the partner either knows of the lack of authority or does not know or believe the person to be a partner. Section 9 reinforces that acts or instruments relating to the business and done by an authorised person in a manner showing an intention to bind the firm are binding. Section 11 addresses restrictions on a partner's authority: an agreed restriction does not protect the firm against a person dealing with the firm who has no notice of the restriction. If the obligation is an ordinary debt of the firm, s 12(1) makes each partner jointly liable with the other partners for debts and obligations incurred while that person is a partner.

The distinction between authority and liability is essential. Sections 8-11 determine whether the firm became bound. Section 12 then identifies the external liability consequence for an ordinary debt. This two-stage analysis prevents the common error of assuming that because a partner breached an internal rule, the outsider necessarily loses.

Application

Lee is a partner in an architectural practice. Specialist modelling equipment is closely connected with the ordinary activities of such a firm. On the facts, the purchase therefore appears to be an act of the kind a partner might undertake in the usual way of the partnership business. That supports the supplier's argument under s 8(1) that Lee's act bound the firm.

The partnership agreement imposed an internal limit requiring unanimous approval for expenditure above $20,000. Lee breached that internal rule by ordering $45,000 of equipment without approval. However, the supplier had never seen the agreement and there is no fact suggesting the supplier otherwise knew of the restriction. Section 11 therefore becomes critical. A private restriction does not automatically defeat the rights of an outsider without notice.

If the firm is bound, the $45,000 is an ordinary contractual debt. Section 12(1), not s 15, is therefore the starting liability provision. The partners are jointly liable for that firm debt, subject to any further facts affecting membership or the transaction.

Counterargument. The other partners would argue Lee had no actual authority because the partnership agreement expressly prohibited the expenditure without unanimous approval. That is true internally. The difficulty is that the supplier's external rights depend on the statutory agency rules and notice. Unless the supplier knew of the restriction or the transaction was outside the usual way of the firm's business, the internal breach is unlikely by itself to prevent the firm being bound.

Internally, Lee's breach of the partnership agreement remains significant. The other partners may have contractual and equitable remedies and may seek contribution or indemnity depending on the agreement and circumstances. That internal dispute is distinct from the supplier's external claim.

Conclusion

The supplier has a strong argument that Lee bound the firm under s 8 and that the private spending restriction does not defeat the supplier's claim because the supplier lacked notice. The resulting obligation is an ordinary partnership debt, so s 12(1) joint liability is the starting point. The other partners may separately pursue Lee for the consequences of breaching the internal partnership agreement.

Exam lesson

Spot the issues in order: relationship -> authority -> notice of restriction -> nature of liability -> internal recourse. That sequence is the beginning of disciplined Corporate Law application.