1. Explain to Ariana and Elsa if they are liable to pay for both the overdue accounts
2. Distinguish how the business of ‘Fabulously You!’ would be run and managed if it were a limited liability partnership
1. The issue in this question is if Ariana and Elsa can be held liable to pay for the contracts created by Bella, particularly in view of the fact that it has been expressly stated in the partnership agreement that the object of the business will be to sell clothes that have been imported from Europe only and the sale of any other articles, other than clothes have been prohibited. Still, Bella had ordered a shipment of clothes from Korea and she had also ordered gemstones and jewelry worth $20,000.
The law of partnership provides that each partner is considered to be liable jointly and severally along with all the other partners, regarding all the acts of the partnership business that have been done while such person remained a partner. Moreover, the law also provides that in this regard, the liability of all the partners is unlimited (Chiam Heng Hsien v Chiam Heng Chow, 2015). In view of the joint and several liability of the partners, the creditor of the partnership business may have civil causes of action. Therefore, it is available to the creditor of the partnership business to either sue the partners together or such creditor may also decide to sue the partners separately. On the other hand regarding the dealings between the partners themselves the partner who has paid for more than his share of the liability, as an option under the law to claim contribution from the other partners in accordance with the terms of the partnership agreement (Gabriel Peter & Partners (suing as a firm) v Wee Chong Jin and othrs., 1997).
The law also provides that when a partner who was acting within his apparent authority and has mis-applied the money or property of the business, either party can make the firm or any of its partners liable if the partner has misappropriated any money or property that was received either as a repayment of debt or as a loan on account of the firm. The law provides that every partner (and in case of his death, his estate) is liable for the debts and obligations of the firm that will incurred while such person was a partner of the firm (Chiam Heng Luan v Chiam Heng Hsien, 2007). In the same way, the partnership and all the partners can also be sued for any wrongful act that may be committed by a partner in the course of the usual business of the firm or being carried out with the authority of the other partners (Hely-Hutchinson v Brayhead Ltd., 1968).
In the present case, Elsa was not taking an active part in the management of the partnership business owner although she was a partner of 20%. The business was merely being carried out by Ariana and Bella, but due to her pregnancy, Ariana also went on extended maternity. Under these circumstances, Bella was managing the shop alone. In order to boost the business of the partnership, Bella decided to order some clothes from a Korean supplier for $10,000. While doing so, she disregarded a clause present in the partnership agreed according to which, the partnership was going to sell clothes from Europe only. At the same time, in order to bolster revenue further, she also started purchasing semi-precious gemstones and jewelry. Therefore, she made an order to purchase gemstones and jewelry worth $30,000 from My Precious Jewels Pte Ltd.
When the business failed to make these payments, the Korean supplier and My Precious Jewels Pte Ltd decided to sue the other partners, Ariana and Elsa. According to the law of partnership mentioned above, all the partners are treated by the law as being jointly and severally liable for the debts of the partnership business. Although there was a clause present in the partnership agreement, but that the parties were not aware regarding the presence of this clause, according to which the partnership business was going to sell the clothes imported from Europe only and it will not sell any other articles.
Under these circumstances, it can be concluded that the Korean supplier and My Precious Jewels Pte Ltd. can sue the other two partners of the business, Ariana and Elsa for the recovery of their amount.
2. In this question, it needs to be described how the business of 'fabulously you' would have been run if it were a limited liability partnership. At the same time, it also needs to be discussed is the answer given about would have been different if 'Fabulously You' would have been registered as a limited liability partnership.
The law provides that a limited liability partnership has to be considered as a separate legal entity. This entity has its own rights and liabilities that are separate from the rights and liabilities of the partners of the limited liability firm. This needs to be distinguished from a partnership where the law provides that all the partners have to be considered as being personally liable for the debts and obligations of the business. Similarly, the law also provides that each limited liability partnership should have at least two partners. In case the limited liability partnership is carrying on business with less than two partners for more than two years, the remaining partner may be held personally liable.
In Singapore, a limited liability partnership (LLP) can be formed by two or more partners. This entity enjoys separate legal personality. As a result, this entity can sue or be sued in its own name. It also has the right to own property in its own name. The limited liability partnership provides the benefit of operational flexibility available in case of a partnership along with the benefits of limited liability that is available in case of the incorporation of a company. A limited liability partnership protects the partners from liability as a result of the willful misconduct or the gross negligence of one partner or a group of partners (Everbright Commercial Enterprises Pte Ltd v AXA Insurance Singapore Pte Ltd., 2000). In case of a limited liability partnership, all the partners are liable only after the extent of their contribution in the business. Therefore, in this case, they cannot be held personally liable. Regarding the debts and obligations of the limited in liability partnership except in the cases where such debts and obligations have arisen due to their own negligence or fraudulence. The mutual rights and duties imposed on a limited liability partnership in Singapore and its partners are doing by the limited liability partnership agreement.
Therefore, if the business of ‘Fabulously You’ would have been run as a limited liability partnership, the other two partners of the business, Ariana and Elsa could not be held liable for making the payments to the Korean supplier or to My Precious Jewels Pte Ltd. for more than the amount that was enlisted by them in the partnership business of Fabulously You.
In case the business of Fabulously You would have been run and managed as a limited liability partnership as compared to its present structure is a general partnership, the business would have been treated as a separate legal entity. Therefore the rights and obligations of the business would have been treated as the rights and obligations of the business itself and not of its partners. In the same way, if 'Fabulously You' would have been registered as a limited liability partnership, the debts and obligations of the business could not be enforced against its members. As a result, Ariana and Elsa could not be held liable to pay to the Korean supplier or to My Precious Jewels Pte Ltd for the clothes and jewelry that have been purchased by Bella.
Chiam Heng Hsien v Chiam Heng Chow  4 SLR 180
Chiam Heng Luan v Chiam Heng Hsien  4 SLR(R) 305
Gabriel Peter & Partners (suing as a firm) v Wee Chong Jin and others  3 SLR(R) 649
Hely-Hutchinson v Brayhead Ltd  1 QB 549
Everbright Commercial Enterprises Pte Ltd v AXA Insurance Singapore Pte Ltd  2 SLR(R) 287