Partnership

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1 Partnership Law

• A partnership is defined as “the relationship which subsists between two or more people carrying on business in common with a view to profit”

• Much of present-day partnership law is contained in the Partnership Act 1890

• Partners may agree amongst themselves how their firm is to operate, so long as their arrangement is legal (Evert v Williams)

• The business must be being “carried on“. It should be more than a one-off transaction, and must be continuing

• It must be “with a view to profit” and is more than the simple sharing of gross revenues

• If a business relationship satisfies the definition, the courts may well determine that a partnership exists, regardless of any written documentation (or intention of the parties) to the contrary

• Partnership contractual debts are joint in England and Wales; liability for wrongful acts and misapplication is joint and several

• Every partner is an agent of the firm and the other partners for the purpose of the business of the firm

• The acts of every partner done in the course of the firm’s business bind the firm and the partners unless the partner was exceeding his authority and ……

• ... the other party knew that fact, or was not aware that the person was a partner

2 The Agreement

• Partnerships are formed by agreement, and the internal arrangements are a matter for agreement amongst the partners

• Typical agreed matters include capital and profit shares, drawings, duties, decision-making, interest, salaries, changes in partners, goodwill and duration

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3 1890 Act

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Without agreement, Partnership Act 1890 defaults include equal sharing of capital, profits and losses; participation in management; no remuneration; 5% interest on advances beyond capital; access to books; majority decisions on ordinary matters; unanimous consent for a change of business or admission of a partner; and no expulsion unless expressly agreed

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4 Dissolution Grounds – Automatic and By Court Order

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5 LPA 1907 and LLPA 2000

• Limited Partnerships Act 1907 main features are :-

  • At least one general partner (with unlimited liability) and one limited partner (with limited liability)

  • Must be registered with the registrar of companies

  • A limited partner who participates in management risks liability for debts incurred while doing so, subject to applicable statutory exceptions

  • If the firm is insolvent or wound up, general partners have unlimited liability; limited partners retain protection only within the statutory conditions

• Limited Liability Partnerships Act 2000 main features are :-

  • Combination of the advantages of a partnership with those of a limited company

  • Must be registered with the registrar of companies

  • Must file accounts, but may qualify for audit exemption

  • The LLP is the debtor and members are generally protected from its debts, but a member remains personally liable for their own wrongful act and may assume liability by agreement; wrongful and fraudulent trading rules also apply