Chapter 4

The Law Relating to Associations 2: Partnerships

A. Partnerships
Definition
Differences between a Registered Company and a Partnership
The Duties of Partnership
The Rights of Partnership
Relationship of Partners to Third Parties
Termination of Partnership
Bankruptcy of Partnership
Liability of New and Retiring Partners
Rights of Partners on Dissolution
B.Limited Liability Partnerships
Definition
Incorporation and Agreement
Designated Members
Differences between an LLP, a Partnership and a Registered Company
Financial Regulation
Duties and Rights of Members
Termination of Membership

A.PARTNERSHIPS
Definition:WHAT IS A PARTNERSHIP
A PARTNERSHIP IS DEFINED IN SECTION 1(1) OF THE PARTNERSHIP ACT
1890 AS:
THE RELATION WHICH SUBSISTS BETWEEN PERSONS CARRYING ON
BUSINESS IN COMMON WITH A VIEW TO A PROFIT

UNDER THE 1890 ACT, BUSINESS INCLUDES EVERY TRADE, OCCUPATION

OR PROFESSION. ALTHOUGH BUSINESS IS A BROAD TERM, IT DOES IMPLY
THE CARRYING ON OF SOME FORM OF COMMERCIAL ACTIVITY. IT IS FOR
THE COURT, LOOKING AT THE FACTS, TO RESOLVE ANY DOUBTS ABOUT
WHETHER A BUSINESS IS BEING CONDUCTED.

A PARTNERSHIP IS, THUS, BASED ON A CONTRACT BETWEEN ITS MEMBERS

AND SINCE IT CAN BE CREATED INFORMALLY AND DISSOLVED INFORMALLY,
IT DIFFERS COMPLETELY FROM A CORPORATION. SEE KHAN V. MIAH (2001)
ANDYOUNG V. ZAHID (2006).
HOW IS A PARTNERSHIP CREATED
BY MEANS OF A DEED, I.E. AN AGREEMENT UNDER SEAL SIGNED BY THE
PERSONS WHO AGREE TO BECOME PARTNERS, OR
BY MEANS OF A SIMPLE AGREEMENT IN WRITING, OR EVEN
BY AN AGREEMENT MADE ORALLY OR
SIMPLY IMPLIED FROM THE ACTIONS OF THE PERSONS CONCERNED.
WHAT CONSTITUTES A PARTNERSHIP UNDER THE PARTNERSHIP ACT 1890?
SECTION 2 WHICH STATES THAT WHERE A PERSON RECEIVES A SHARE IN
THE PROFITS OF A BUSINESS, THIS WILL SERVE AS PRIMA FACIE
EVIDENCE THAT HE/SHE IS A PARTNER OF A FIRM.

A PARTNERSHIP REQUIRES THE PARTICIPATION OF AT LEAST TWO

PERSONS; THEY CAN BE EITHER NATURAL OR LEGAL PERSONS.

THERE ALSO MUST BE A PROFIT MOTIVE UNDERLYING THE BUSINESS. IT

WILL BE A QUESTION OF FACT WHETHER THE PARTNERS AIM TO MAKE A
PROFIT. THE PARTIES MUST INTEND TO MAKE A PROFIT AS A
CONSEQUENCE OF THEIR DEALINGS.

SHARING GROSS RETURNS: SECTION 2(2): THE SHARING OF GROSS

RETURNS DOES NOT OF ITSELF CREATE A PARTNERSHIP, WHETHER OR NOT
THE PERSONS SHARING GROSS RETURNS ALSO HAVE A COMMON
INTEREST IN ANY PROPERTY FROM WHICH THE RETURNS ARE DERIVED
SEE: COX V. COULSON (1916).

SHARING NET PROFITS: SECTION 2(3): IF A PERSON RECEIVES A SHARE OF

THE NET PROFITS OF A BUSINESS, THIS IS PRIMA FACIEEVIDENCE THAT
HE/SHE IS A PARTNER IN THE BUSINESS, BUT IT DOES NOT OF ITSELF MAKE
HIM/HER A PARTNER IN THEBUSINESS.

WHO WILL NOT BE CONSIDERED AS A PARTNER?

(I)A PERSON WILL NOT BE A PARTNER JUST BECAUSE HE/SHE RECEIVES
REPAYMENT OF A DEBT IN INSTALMENTS WHICH VARY ACCORDING TO THE
PROFITS OF THE BUSINESS
(II)AN EMPLOYEE WILL NOT BE REGARDED AS A PARTNER BECAUSE HE/SHE IS
PAID, OR PARTLY PAID BY A SHARE OF THE PROFITS OF THE BUSINESS
(III)A DECEASED PARTNER'S WIDOW AND/OR CHILD WILL NOT BE REGARDED AS A
PARTNER JUST BECAUSE THEY RECEIVE, AS AN ANNUITY, A SHARE OF THE
PROFITS OF THE BUSINESS IN WHICH THE DECEASED WAS A PARTNER
(IV)A PERSON WHO HAS LOANED MONEY TO A BUSINESS UNDER AN AGREEMENT,
WHICH PROVIDES THAT THE INTEREST RATE WILL VARY ACCORDING TO THE
PROFITS, OR REPAYMENTS WILL BE MADE AS A PERCENTAGE OF THE PROFITS,
WILL NOT BE REGARDED AS A PARTNER PROVIDED THE LOAN AGREEMENT IS IN
WRITING AND SIGNED BY ALL THE PARTIES(V)A PERSON WHO HAS SOLD THE
GOODWILL OF A BUSINESS WILL NOT BE REGARDED AS A PARTNER JUST BECAUSE
HE RECEIVES AS PAYMENT A SHARE OF THE PROFITS OF THE BUSINESS SEE:
PRATT V. STRICK (1932).
IN DECIDING WHETHER AN ARRANGEMENT IS A PARTNERSHIP, THE COURTS LOOK
AT THE SUBSTANCE OF THE AGREEMENT AND NOT WHAT THE PARTIES HAVE
CALLED IT. IF THE ARRANGEMENT APPEARS OBJECTIVELY TO BE A PARTNERSHIP,
THE LAW WILL TREAT IT AS A PARTNERSHIP.

WHAT ARE THE DIFFERENCES BETWEEN A REGISTERED COMPANY AND A

PARTNERSHIP
THE FOLLOWING IMPORTANT DIFFERENCES EXIST BETWEEN A REGISTERED
COMPANY AND A PARTNERSHIP.
(A)THE METHOD OF FORMATION
ALL COMPANIES MUST BE REGISTERED IN ACCORDANCE WITH THE
PROCEDURE LAID DOWN IN THE COMPANIES ACT 2006.ANYTWO OR MORE
PERSONS ASSOCIATED FOR A LAWFUL PURPOSE MAY, BY SUBSCRIBING
THEIR NAMES TO A MEMORANDUM OF ASSOCIATION AND OTHERWISE
COMPLYING WITH THE REQUIREMENTS OF THIS ACT IN RESPECT OF
REGISTRATION, FORM AN INCORPORATED COMPANY, WITH OR WITHOUT
LIMITED LIABILITY.

IN RELATION TO THE FORMATION OF AN ORDINARY PARTNERSHIP, THERE

ARE NO FORMAL REGISTRATION REQUIREMENTS WHICH MUST BE
FOLLOWED UNDER THE PARTNERSHIP ACT 1890. ALTHOUGH NO
FORMALITIES ARE REQUIRED FOR A PARTNERSHIP TO BE FORMED IN
DIRECT CONTRAST TO REGISTERED COMPANIES, A PARTNERSHIP DEEDIS
OFTEN DRAWN UP TO COVER THE RIGHTS AND RESPONSIBILITIES OF THE
PARTNERS DURING THE TERM OF THE PARTNERSHIP AND ALSO ON ITS
DISSOLUTION. IF THERE IS NO DEED OF PARTNERSHIP, THE PARTNERSHIP
ACT 1890 GOVERNS THE LEGAL RELATIONS BETWEEN THE PARTNERS.

(B)THE NEED FOR A WRITTEN CONSTITUTION

IN ACCORDANCE WITH THE COMPANIES ACT 2006, A COMPANY MUST HAVE A
WRITTEN CONSTITUTION, I.E. A MEMORANDUM OF ASSOCIATION AND
ARTICLES OF ASSOCIATION.

A PARTNERSHIP AGREEMENT NEED NOT BE IN WRITING, ALTHOUGH IN THE

VAST MAJORITY OF CASES, IT WILL BE EVIDENCED IN WRITING.

(C)SEPARATE CORPORATE PERSONALITY AND ITS LEGAL IMPLICATIONS

FOLLOWING INCORPORATION, A COMPANY IS A BODY CORPORATE WITH A
SEPARATE CORPORATE PERSONALITY AND, AMONG OTHER THINGS, CAN BE
SUED IN ITS OWN NAME AS A SEPARATE LEGAL PARTY FROM ITS MEMBERS,
IN THE EVENT OF A BREACH OF CONTRACT BY IT. THIS LEGAL PRINCIPLE
WAS ESTABLISHED BY THE CASE OF SALOMON V. SALOMON & CO. LTD
(1897).ON THE REGISTRATION OF A COMPANY'S MEMORANDUM OF
ASSOCIATION, THE REGISTRAR OF COMPANIES ISSUES A COMPANY WITH A
CERTIFICATE OF INCORPORATION, IDENTIFYING CLEARLY TO OUTSIDERS
THAT THE COMPANY IS A CORPORATE BODY AND THAT THE LIABILITY OF ITS
MEMBERS IS LIMITED.FROM THE DATE ON THE CERTIFICATE OF
INCORPORATION, THE SUBSCRIBERS OF THE MEMORANDUM, TOGETHER
WITH SUCH OTHER PERSONS AS MAY, FROM TIME TO TIME, BECOME
MEMBERS OF THE COMPANY (LINK TO PERPETUAL SUCCESSION), BECOME
A BODY CORPORATE BY THE NAME CONTAINED IN THE MEMORANDUM.

A PARTNERSHIP IS NOT A CORPORATE BODY AND DOES NOT HAVE A

SEPARATE CORPORATE PERSONALITY, I.E. THE MEMBERS AND THE FIRM
ARE FOR LEGAL PURPOSES THE SAME PERSON AND CAN BE SUED
DIRECTLY, E.G. IN THE EVENT OF A BREACH OF CONTRACT; THIS IS ONE OF
THE MAJOR DIFFERENCES BETWEEN A FIRM AND A COMPANY. IN THE EVENT OF A
PARTNERSHIP BUSINESS FAILING AND THE ASSETS OF THE FIRM BEING INSUFFICIENT TO

PAY CREDITOR'S DEBTS, THE PERSONAL ASSETS OF THE FIRM'S PARTNERS CAN BE SEIZED,
WHICH COULD LEAD TO A PARTNER BEING DECLARED BANKRUPT.

D)AGENCY
THE CONCEPT OF AGENCY IS CENTRAL TO THE UNDERSTANDING OF COMPANY
COMMERCIAL TRANSACTIONS. IN A COMPANY, MERE MEMBERSHIP DOES NOT OF
ITSELF INVEST THE SHAREHOLDER WITH THE POWER TO ACT AS AN AGENT FOR
AND ON BEHALF OF THE COMPANY. INCOMPANIES, DIRECTORS ACT AS AGENTS,
DERIVING THEIR AUTHORITY TO DO SO FROM THE COMPANY'S ARTICLES OF
ASSOCIATION; THE PRINCIPAL IN THE AGENCY RELATIONSHIP BEING THE
COMPANY'S CONSTITUTION. AGENCY POWERS ARE CONTAINED IN THE
COMPANY'S ARTICLES OF ASSOCIATION AND THESE POWERS ARE THE PRINCIPAL
AGENCY RELATIONSHIP SOURCE, I.E. THEY STATE WHOSE ACTS WILL BE
REGARDED AS THOSE OF THE COMPANY. THE ARTICLES WILL NORMALLY GRANT
FULL AGENCY POWERS TO THE BOARD OF DIRECTORS, WHO ARE REQUIRED TO
EXERCISE THIS POWER BONA FIDE IN THE INTERESTS OF THE COMPANY, A
FIDUCIARY OBLIGATION. THEY ARE ALSO UNDER A DUTY TO EXERCISE CARE AND
SKILL WHEN ENTERING INTO CONTRACTS ON BEHALF OF THE COMPANY. THE
STANDARD OF CARE AND SKILL THEY ARE REQUIRED TO DEMONSTRATE IS THE
GENERALKNOWLEDGE, SKILL AND EXPERIENCE THAT MAY REASONABLY BE
EXPECTED OF A PERSON CARRYING OUT THE SAME FUNCTIONS AS ARE CARRIED
OUT BY THAT DIRECTOR IN RELATION TO THE COMPANY.
IN ORDINARY PARTNERSHIPS, ALL PARTNERS ARE AGENTS OF THE FIRM IN
THE ABSENCE OF AN AGREEMENT TO THE CONTRARY. THE PARTNERSHIP
ACT 1890 S.5 DEFINES THE SCOPE OF AN AGENT'S APPARENT AUTHORITY, IN
RELATION TO THE POWER OF A PARTNER TO BIND HIS FIRM.
"EVERY PARTNER IS AN AGENT OF THE FIRM AND HIS OTHER PARTNERS FOR
THE PURPOSE OF THE BUSINESS OF THE PARTNERSHIP; AND THE ACTS OF
EVERY PARTNER WHO DOES ANY ACT FOR CARRYING ON IN THE USUAL WAY
BUSINESS OF THE KIND CARRIED ON BY THE FIRM OF WHICH HE IS A MEMBER
BIND THE FIRM AND HIS PARTNERS, UNLESS THE PARTNER SO ACTING HAS IN
FACT NO AUTHORITYTO ACT FOR THE FIRM IN THE PARTICULAR MATTER, AND
THE PERSON WITH WHOM HE IS DEALING EITHER KNOWS THAT HE HAS NO
AUTHORITY, OR DOES NOT KNOW OR BELIEVE HIM TO BE A PARTNER.
THE SCOPE OF A PARTNER'S AUTHORITY TO BIND HIS FIRM IN CONTRACTUAL
AGREEMENTS IS AMATTER WHICH IS USUALLY REGULATED BY A PARTNERSHIP
AGREEMENT, I.E. NOT ALL PARTNERS MAY HAVE APPARENT AUTHORITY TO ACT
AS AGENTS OF THEIR FIRM.
(E)LIMITATION OF LIABILITY OF MEMBERS
IN A COMPANY LIMITED BY SHARES, THE FINANCIAL LIABILITIES OF THE
BUSINESS, SUCH AS TRADING DEBTS, END WHEN MEMBERS HAVE FULLY
PAID FOR THEIR SHARES TOGETHER WITH ANY SHARE PREMIUM.
ESSENTIALLY, ALL THE SHAREHOLDERS OF A COMPANY WILL HAVE LIMITED
LIABILITY IN THE ABSENCE OF GROUNDS JUSTIFYING THE DRAWING ASIDE
OF THE CORPORATE VEIL BY THE COURTS OR THE JUDICIARY.

THE LIABILITY OF PARTNERS FOR THE DEBTS OF THE FIRM ON

DISSOLUTION IS UNLIMITED, IN THE ABSENCE OF AN AGREEMENT TO THE
CONTRARY. IF THE ASSETS OF THE FIRM ARE INSUFFICIENT TO MEET THE
LIABILITY, THE CREDITOR CAN LOOKTO THE PERSONAL PROPERTY OF THE
INDIVIDUAL PARTNERS. TO THIS END, ALL THE PARTNERS ARE SAID TO BE
JOINTLY AND SEVERALLY LIABLE WITH THE FIRM (SECTION 9,
PARTNERSHIP ACT 1890), WHICH MEANS THAT EACH PARTNER IS
RESPONSIBLE FOR THE WHOLE OF THE FIRM'S DEBTS; A SITUATION WHICH

MAY RESULT IN BANKRUPTCY PROCEEDINGS BEING BROUGHT AGAINST THE

FIRM'S PARTNERS.
(F) MANAGEMENT STRUCTURE
IN A COMPANY THERE IS A SEPARATION OF EQUITY OWNERSHIP AND
CONTROL. A COMPANY IS MANAGED BY THOSE EMPOWERED TO DO SO
UNDER ITS ARTICLES OF ASSOCIATION, ITS BOARD OF DIRECTORS. THE
MEANS AVAILABLE TO COMPANY MEMBERS, TO REQUIRE DIRECTORS TO
ACCOUNT FOR THEIR ACTIONS ARE, THEREFORE, OF CRITICAL
IMPORTANCE AND COMPANY LAW IN THE INTERESTS OF DEMOCRACY
PROVIDES THAT CERTAIN DECISIONS,SUCH AS ALTERATIONS TO THE
ARTICLES OR MEMORANDUM, CAN ONLY LEGITIMATELY BE CARRIED OUT IN
GENERAL MEETING OF THE COMPANY.
IN A PARTNERSHIP THERE IS NO SEPARATION OF OWNERSHIP OF CONTROL,
IN THE ABSENCE OF AN AGREEMENT TO THE CONTRARY. UNDER SECTION
24 OF THE PARTNERSHIP ACT 1890, ALL PARTNERS RIGHT TO PARTICIPATE
IN THE MANAGEMENT OF THEIR FIRM AND THIS STATUTORY PROVISION
WILL OPERATE IN THE ABSENCE OF AN AGREEMENT TO THE CONTRARY.
DENIAL OF THIS RIGHT OF A PARTNER TO PARTICIPATE IN THE MANAGEMENT OF
THE FIRM WOULD BE GROUNDS FOR DISSOLUTION ON JUST AND EQUITABLE
GROUNDS IN ACCORDANCE WITH SECTION 35 OF THE PARTNERSHIP ACT 1890.
THE RELATIONSHIP BETWEEN PARTNERS OF A FIRM IS UBERRIMAE FIDEIANDSUCH
DENIAL AMOUNTS TO A BREACH OF MUTUAL TRUST AND CONFIDENCE.
(G)MEMBERSHIP
A COMPANY CONTINUES TO EXIST EVEN WHEN ITS MEMBERS CHANGE OR
DIE, BECAUSE OF PERPETUAL SUCCESSION. COMPANY MEMBERS CAN
ENTER AND LEAVE A COMPANY FAIRLY EASILY, JUST BY BUYING AND
SELLING THEIR SHARES. ONE ADVANTAGE OF THIS IS THAT THE DEEDS TO
COMPANY PROPERTY DO NOT NEED TO BE ALTERED WHEN THE
MEMBERSHIP OF THE COMPANY CHANGES, UNLIKE THE SITUATION WHICH
EXISTS IN PARTNERSHIPS. THE SHARES IN A COMPANY ARE NORMALLY
FREELY TRANSFERABLE IN ACCORDANCE WITH A COMPANY'S ARTICLESOF
ASSOCIATION.
IN THE ABSENCE OF A PARTNERSHIP AGREEMENT TO THE CONTRARY, THE
FIRM WILL BE DISSOLVED WHEN ONE OF ITS PARTNERS LEAVES OR DIES,
I.E. A PARTNERSHIP DOES NOT HAVE PERPETUAL SUCCESSION.
MOREOVER, A NEW PARTNER CANNOT JOIN THE PARTNERSHIP WITHOUT
THE CONSENT OF ALL THE EXISTING PARTNERS. THIS HIGHLIGHTS THE
NATURE OF A PARTNERSHIP AS A JOINT VENTURE BASED ON UTMOST
TRUST; A PARTNERSHIP RELATIONSHIP IS UBERRIMAE FIDEI.IN THE
ABSENCE OF AN AGREEMENT TO THE CONTRARY, THE SHARES IN A
PARTNERSHIPARE NOTFREELY TRANSFERABLE.
(H)BORROWING
A COMPANY CAN RAISE LOAN CAPITAL BY ISSUING DEBENTURES (DEBT
SECURED BY MEANS OF A FLOATING OR FIXED CHARGE ON THE COMPANY'S
ASSETS).
A PARTNERSHIP CANNOT ISSUE DEBENTURES SECURED ON THE FIRMS
ASSETS.

(I)FORMALITIES AND PUBLIC INSPECTION

A COMPANY MUST FILE, WITH THE REGISTRAR OF COMPANIES, A WEALTH
OF DETAIL ABOUT ITSELF ON A REGULAR BASIS. MOREOVER, ON THE
PAYMENT OF A NOMINAL FEE, ALL OF THIS INFORMATION IS OPEN FOR
PUBLIC INSPECTION. THUS ITS MEMBERSHIP, ITS ANNUAL ACCOUNTS AND
DETAILS OF THE PROPERTY IT HAS CHARGED ARE AMONGST THE LONG
LIST OF DETAILS WITH WHICH THE REGISTRAR MUST BE PROVIDED; ALL
DOCUMENTS ON RECEIPT BECOMING PUBLIC DOCUMENTS. THUS THERE IS
A CONSIDERABLE INTERNAL ADMINISTRATIVE BURDEN ASSOCIATED WITH
THE PREPARATION OF SUCH DOCUMENTATION IN LINE WITH THE
REQUIREMENTS OF COMPANIES LEGISLATION. FURTHERMORE, FINANCIAL
PENALTIES CAN BE EXACTED AGAINST COMPANIES IN DEFAULT
PERSISTENT DEFAULT CAN LEAD TO DIRECTORS INCURRING CRIMINAL
LIABILITY THE CONSEQUENCES OF WHICH ARE IMPRISONMENT AND/OR
DISQUALIFICATION OF A COMPANY DIRECTOR IN ACCORDANCE WITH THE
COMPANY DIRECTORS DISQUALIFICATION ACT 1986.

A FIRM, BY DIRECT CONTRAST TO A COMPANY, CAN MAINTAIN COMPLETE

SECRECY OVER ITS AFFAIRS (OTHERTHAN PROVIDING DETAILS OF ITS
PROPRIETORS WHERE THE BUSINESS NAMES ACT 1985 APPLIES) ONE OF
THE MAIN ADVANTAGES. A PARTNERSHIP MUST REGISTER UNDER THE
BUSINESS NAMES ACT 1985 (NOW PART 41 OF THE COMPANIES ACT 2006),
ANY NAME IT USES TO TRADE UNDER WHICH DOES NOT CONSIST OF THE
SURNAMES OF ALL THE PARTNERS, E.G. SMITH & CO.

(J)TERMINATION
A COMPANY CANNOT BE WOUND-UP WITHOUT STATUTORY INTERVENTION.
SINCE A COMPANY HAS BEEN CREATED BY STATUTORY INTERVENTION,
NAMELY BY THE COMPANIES ACT 2006, ITS TERMINATION IS ALSO
REGULATED BY STATUTORY INTERVENTION, NAMELY BY THE INSOLVENCY
ACT 1986. A COMPANY WILL NOT NORMALLY BE REQUIRED TO BE WOUNDUP ON THE GROUNDS THAT ONE OF ITS MEMBERS HAS DIED OR BEEN
DECLARED BANKRUPT.
A PARTNERSHIP MAY BE DISSOLVED WITHOUT STATUTORY INTERVENTION.
FOR EXAMPLE, IN THE ABSENCE OF AN AGREEMENT TO THE CONTRARY, A
PARTNERSHIP WILL BE DISSOLVED ON THE DEATH OR BANKRUPTCY OF A
PARTNER.

(K)THE ARTICLES OF PARTNERSHIP

AS A GENERAL RULE, THE PARTNERSHIP COMES INTO BEING BY MEANS OF
ANAGREEMENT IN WRITING, THE DOCUMENT BEING KNOWN AS THE ARTICLES OF
PARTNERSHIP. THIS WILL BE SIGNED BY ALL THE PARTNERS AND CONTAIN ALL
THE CONDITIONS, ETC. UNDER WHICH THE PARTNERS INTEND TO CARRY OUT
THEIR BUSINESS.
THE ARTICLES OF PARTNERSHIP USUALLY INCLUDE CLAUSES DEALING WITH THE
NATURE OF THE BUSINESS; ITS CAPITAL AND PROPERTY AND THE RESPECTIVE
CAPITALS OF EACH PARTNER, THE METHOD OF SHARING PROFITS AND LOSSES
AND THE RULES AS TO INTEREST ON CAPITAL AND DRAWINGS.
PROVISION IS ALSO OFTEN MADE FOR THE METHOD OF DETERMINING THE VALUE
OF GOODWILL ON RETIREMENT OR DEATH, AND OF COMPUTING THE AMOUNT
PAYABLE TO AN OUTGOING OR DECEASED PARTNER. THE PARTNERS ARE BOUND
BY THE ARTICLES AND IF ANY POINT IS NOT ADDRESSED WITHIN THEM, THE
PARTNERSHIP ACTAPPLIES.
THE FACTS IN GREENAWAY V. GREENAWAY (1939)WERE THAT, UNDER THE
ARTICLES OF PARTNERSHIP, A PARTNER WAS LIABLE TO BE EXPELLED IF HE
ACTED IN A MANNER CONTRARY TO THE GOOD FAITH REQUIRED OF PARTNERS
AND PREJUDICIAL TO THE FIRM'S GENERAL INTEREST. FOR A LONG TIME THERE
WAS CONSIDERABLE ACRIMONY BETWEEN TWO OF THE PARTNERS, WHICH
EVENTUALLY CAME TO A HEAD WHEN ONE ASSAULTED THE OTHER. IT WAS
HELDTHAT HIS EXPULSION WAS JUSTIFIED, SINCE HIS ASSAULT WAS AN ACT OF
DISLOYALTY AND CONSTITUTED CONDUCT WHICH WAS CLEARLY CONTRARY TO
THE GOOD FAITH REQUIRED OF PARTNERS.
(L)REGISTRATION THE FIRM NAME
A PARTNERSHIP IS NOT SUBJECT TO REGISTRATION, UNLESS IT IS A LIMITED
PARTNERSHIP.
LEGALLY, THE FIRM'S NAME IS MERELY A CONVENIENT WAY OF ALLUDING TO
EXISTING PARTNERS.AN AUTHORITY TO LEND TO A FIRM DOES NOT AUTHORISE A
LOAN TO THAT FIRM WHEN THE PARTNERS HAVE CHANGED, BUT COPYRIGHT CAN
BE REGISTERED IN A FIRM'S NAME. THE FIRM'S NAME WILL BE PROTECTED.
PARTNERS CAN SUE AND BE SUED IN A FIRM'S NAME, ALTHOUGH THEY
MUSTAPPEAR IN PERSON

WHAT ARE THE DUTIES OF PARTNERSHIP

THE FIDUCIARY NATURE OF A PARTNERSHIP MEANS THAT EACH PARTNER HAS A
DUTY TO ACT IN GOOD FAITH, IN THE BEST INTERESTS OF THE FIRM. SEE CONLON
V. SIMMS (2006).
IN ADDITION TO THIS GENERAL FIDUCIARY DUTY, THE PARTNERSHIP ACT 1890 LAYS
DOWN CERTAIN SPECIFIC DUTIES.
(A)THE DUTY TO DISCLOSE
PARTNERS ARE BOUND TO RENDER TRUE ACCOUNTS AND FULL INFORMATION OF
ALL THINGS AFFECTING THE PARTNERSHIP TO ANY PARTNER OR HIS LEGAL
REPRESENTATIVES. SECTION 28
THIS STATUTORY DUTY IS STRICT AND APPLIES TO ALL THINGS AFFECTING THE
PARTNERSHIP: LAW V. LAW (1905). IN THIS CASE THE TWO LAWS, WILLIAM AND
JAMES, WERE PARTNERS IN A WOOLLEN MANUFACTURERS' BUSINESS IN HALIFAX,
WEST YORKSHIRE. WILLIAM LIVED IN LONDON AND TOOK LITTLE PART IN THE
RUNNING OF THE BUSINESS. JAMES BOUGHT WILLIAM'S SHARE OF THE FIRM FOR
21,000. LATER WILLIAM DISCOVERED THE BUSINESS WAS WORTH
CONSIDERABLY MORE AND THAT VARIOUS ASSETS UNKNOWN TO HIM HAD NOT
BEEN DISCLOSED. THE COURT OF APPEAL HELD THAT, IN PRINCIPLE, THIS WOULD
ALLOW WILLIAM TO SET THE CONTRACT ASIDE. COZENS-HARDY LJ EXPLAINED
THIS DECISION IN THE FOLLOWING TERMS:
NOW IT IS CLEAR LAW THAT, IN A TRANSACTION BETWEEN CO-PARTNERS FOR
THE SALE BY ONE TO THE OTHER OF A SHARE IN THE PARTNERSHIP BUSINESS,
THERE IS A DUTY RESTING ON THE PURCHASER WHO KNOWS, AND IS AWARE
THAT HE KNOWS, MORE ABOUT THE PARTNERSHIP ACCOUNTS THAN THE
VENDOR, TO PUT THE VENDOR IN POSSESSION OF ALL THE MATERIAL FACTS WITH
REFERENCE TO THE PARTNERSHIP ASSETS, AND NOT TO CONCEAL WHAT HE
KNOWS
(B)THE DUTY TO ACCOUNT
EVERY PARTNER MUST ACCOUNT TO THE FIRM FOR ANY BENEFIT DERIVED BY
HIM WITHOUT THE CONSENT OF THE OTHER PARTNERS FROM ANY TRANSACTION
CONCERNING THE PARTNERSHIP, OR FROM ANY USE BY HIM OF THE
PARTNERSHIP PROPERTY NAME OR BUSINESS CONNECTION. SECTION 29.
THIS DUTY OF PARTNERS TO ACCOUNT FOR PRIVATE PROFITS TO THE FIRM IS
VERY WIDE ANY USE BY HIM OF THE PARTNERSHIP PROPERTY NAME OR
BUSINESS CONNECTION, FOR EXAMPLE, CAN EXTEND BEYOND THE USE OF THE
PARTNERSHIP ASSETS OR EXPLOITATION OF A PARTNERSHIP TRANSACTION.
TO THIS END, THE CLEAREST EXAMPLE OF LIABILITY UNDER SECTION 29 IS THE
RECEIPT OF SECRET PROFIT, I.E. WHERE ONE PARTNER MAKES A PERSONAL
PROFIT OUT OF ACTING ON BEHALF OF THE PARTNERSHIP: BENTLEY V. CRAVEN
(1853). IN THIS CASE BENTLEY, CRAVEN AND TWO OTHERS WERE PARTNERS IN A
SUGAR REFINERY AT SOUTHAMPTON. CRAVEN WAS THE FIRM'S BUYER AND AS
SUCH HE WAS ABLE TO BUY SUGAR AT A DISCOUNT ON THE MARKET PRICE.
HAVING BOUGHT THE SUGAR AT THE DISCOUNTED PRICE HE THAN SOLD IT TO THE
FIRM AT FULL MARKET PRICE. THE OTHER PARTNERS ONLY LATER DISCOVERED
THAT HE HAD BEEN BUYING AND SELLING THE SUGAR TO THEM ON HIS OWN
BEHALF. THE FIRM SUCCESSFULLY CLAIMED HIS PROFITS FROM THESE
DEALINGS. IT WOULD HAVE MADE NO DIFFERENCE IF THE OTHER PARTNERS
COULD NOT HAVE OBTAINED A DISCOUNT SO THAT THEY, IN FACT, SUFFERED NO
LOSS, SINCE THEY WOULD HAVE HAD TO PAY THE FULL MARKET PRICE IN ANY
CASE.

(C)THE DUTY NOT TO COMPETE

IF A PARTNER, WITHOUT THE CONSENT OF THE OTHER PARTNERS, CARRIES ON
ANY BUSINESS OF THE SAME NATURE AS AND COMPETING WITH THAT OF THE
FIRM, HE MUST ACCOUNT FOR AND PAY OVER TO FIRM ALL PROFITS MADE BY HIM
IN THAT BUSINESS. SECTION 30.
THE CENTRAL ISSUE IN RELATION TO SECTION 30 OF THE PARTNERSHIP ACT 1890
IS WHETHER THE BUSINESS IS IN COMPETITION WITH THAT OF THE FIRM. IF IT IS,
THEN THE LIABILITY TO ACCOUNT IS ESTABLISHED AND THERE IS NO NEED TO
SHOW ANY USE OF PARTNERSHIP ASSETS, ETC. IN THAT BUSINESS, AS WITH
SECTION 29 (REGARDING ACCOUNTABILITY OF PARTNERS FOR PRIVATE PROFITS).
WHETHER OR NOT THERE IS A COMPETITIVE BUSINESS IS A QUESTION OF FACT.
BY ANALOGY WITH THE LAW OF TRUSTS, IT MAY DEPEND UPON HOW SPECIALIST
THE BUSINESS IS, E.G. A YACHT OR CLASSIC CAR COMPANY MAY REQUIRE MORE
PROTECTION THAN A FIRM OF NEWSAGENTS. IF A PARTNER SETS UP OR
BECOMES INVOLVED IN ANY COMPETING BUSINESS WITHOUT THE CONSENT OF
THE OTHER PARTNERS, HE MUST PAY TO THE FIRM ANY PROFITS HE HAS MADE IN
THE COMPETING BUSINESS: PILLANS BROTHERS V. PILLANS (1908).

THE RIGHTS OF PARTNERSHIP

SUBJECT TO AN EXPRESS PROVISION TO THE CONTRARY IN THE PARTNERSHIP
AGREEMENT, SECTION 24 OF THE PARTNERSHIP ACT 1890 SETS OUT THE
FOLLOWING STATUTORY RIGHTS FOR THE PARTNERS OF A FIRM.
(A)TO SHARE EQUALLY IN THE CAPITAL, PROFITS AND LOSSES OF THE BUSINESS:
SECTION 24(1)
THE PROFITS BELONG TO THE PARTNERS BUT SO DO THE DEBTS/LOSSES. ALL
THE PARTNERS, IN THE ABSENCE OF AN AGREEMENT TO THE CONTRARY, ARE
JOINTLY AND SEVERALLY LIABLE WITH THE FIRM BY SECTION 9 OF THE
PARTNERSHIP ACT 1890, WHICH MEANS THAT EACH PARTNER IS RESPONSIBLE
FOR THE WHOLE OF THE FIRM'S DEBTS. THE PERSONAL PROPERTY OF PARTNERS
CAN BE SEIZED BY CREDITORS TO PAY FOR THE PARTNERSHIP DEBTS IF THE
BUSINESS FAILS. A CREDITOR COULD SUE THE FIRM AND ALL THE PARTNERS
TOGETHER, OR SUE THEM IN TURN UNTIL THE DEBT IS PAID. THE ESTATE OF A
DECEASED PARTNER CAN BE MADE LIABLE FOR A DEBT INCURRED WHILE THE
DECEASED WAS A PARTNER: BAGEL V. MILLER (1903). DORMANT PARTNERS ARE
ALSO LIABLE EQUALLY WITH ACTIVE ONES.
(B)TO BE INDEMNIFIED BY THE FIRM FOR ANY LIABILITIES INCURRED OR
PAYMENTS MADE IN THE ORDINARY COURSE OF BUSINESS: SECTION 24(2)
IF ONE PARTNER DOES SETTLE A PARTNERSHIP DEBT, EITHER WILLINGLY OR
UNWILLINGLY, BECAUSE HE IS THE ONE WHO HAS BEEN SUED (REMEMBER ALL
THE PARTNERS OF A FIRM ARE JOINTLY AND SEVERALLY LIABLE FOR THE DEBTS
OF THE FIRM IN THE ABSENCE OF AN EXPRESS AGREEMENT TO THE CONTRARY
BY VIRTUE OF SECTION 24(1)), HE/SHE HAS A RIGHT TO CLAIM AN INDEMNITY FROM
HIS/HER FELLOW PARTNERS UNDER SECTION 24(2) OF THE 1890 ACT.
(C)TO BE PAID INTEREST ON ANY ADDITIONAL CAPITAL CONTRIBUTION AT THE
RATE OF 5% PER ANNUM: SECTION 24(3)
THE 1890 ACT BY VIRTUE OF SECTION 24(3) MAKES A DISTINCTION BETWEEN A
CONTRIBUTION OF CAPITAL BY A PARTNER ON FORMATION OF THE PARTNERSHIP
AND ANY ADDITIONAL CONTRIBUTION WHICH HE MAY AGREE TO MAKE. ON THIS
ADDITIONAL CONTRIBUTION HE IS ENTITLED TO 5% INTEREST PER ANNUM FROM
THE DATE ON WHICH HE MADE THE ADDITIONAL CONTRIBUTION.

10

(D)TO PARTICIPATE IN THE MANAGEMENT OF THE BUSINESS: SECTION 24(5)

THE CONTINUATION OF A PARTNERSHIP DEPENDS ON IT NOT ONLY BEING A JOINT
VENTURE BUT ON THE EXISTENCE OF MUTUAL TRUST AND CONFIDENCE
AMONGST THE PARTNERS INTER SE. A RIGHT TO MANAGEMENT PARTICIPATION IS
A NECESSARY CONSEQUENCE OF UNLIMITED LIABILITY FOR THE DEBTS OF THE
FIRM. DENYING A PARTNER THE RIGHT TO PARTICIPATE IN THE MANAGEMENT OF
THE FIRM IN THE ABSENCE OF AN AGREEMENT TO THE CONTRARY IS A GROUND
FOR PARTNERSHIP DISSOLUTION ON JUST AND EQUITABLE GROUNDS IN
ACCORDANCE WITH SECTION 35(F) OF THE PARTNERSHIPACT 1890.
IT SHOULD BE NOTED THAT A LIMITED PARTNER HAS NO RIGHTS OF MANAGEMENT
AND THAT, IF HE INTERFERES IN THE RUNNING OF THE BUSINESS, HE WILL LOSE
HIS SHIELD OF LIMITED LIABILITY.
(E)TO PREVENT THE ADMISSION OF A NEW PARTNER OR PREVENT ANY CHANGE
INTHE NATURE OF THE PARTNERSHIP BUSINESS: SECTIONS 24(7) AND (8)
RESPECTIVELY
THE SUCCESSFUL OPERATION OF PARTNERSHIPS AS BUSINESS
ORGANISATIONS DEPENDS ON THE SUSTAINMENT OF MUTUAL TRUST
BETWEEN THE PARTNERS INTER SE. IT IS NOT SURPRISING, THEREFORE,
THATTHE 1890 ACT DOES NOT REGARD THIS AS A MATTER FOR THE
MAJORITY TO DECIDE, SECTION 24(7) STATING THAT: NO PERSON MAY BE
INTRODUCED AS A PARTNER WITHOUT THE CONSENT OF ALL EXISTING
PARTNERS (SUBJECT TO AN AGREEMENT TO THE CONTRARY IN THE FIRM'S
PARTNERSHIP AGREEMENT).
IN CONNECTION WITH CHANGES IN THE NATURE OF THE FIRM'S BUSINESS,
SECTION 24(8) STATES THAT: ANY DIFFERENCE ARISING AS TO ORDINARY
MATTERS CONNECTED WITH THE PARTNERSHIP BUSINESS MAY BE DECIDED
BY A MAJORITY OF THE PARTNERS, BUT NO CHANGE MAY BE MADE IN THE
NATURE OF THE PARTNERSHIP BUSINESS WITHOUT THE CONSENT OF ALL
EXISTING PARTNERS.
(F)TO HAVE ACCESS TO THE FIRM'S BOOKS: SECTION 24(9)
THIS UNFETTERED RIGHT OF A PARTNER TO INSPECT THE BOOKS OF THE FIRM IS
A VALUABLE ONE AND AGAIN FLOWS FROM THE NATURE OF A PARTNERSHIP I.E. AS
A JOINT VENTURE BASED ON MUTUAL TRUST AND CONFIDENCE.

11

PARTNERS AS AGENTS
IN THE ABSENCE OF A PROVISION TO THE CONTRARY IN A FIRM'S PARTNERSHIP
AGREEMENT, ALL PARTNERS HAVE APPARENT AUTHORITY TO ACT AS AGENTS
FOR THE FIRM AND TO BIND IT BY THEIR ACTS:
SECTION 5, PARTNERSHIP ACT 1890:
EVERY PARTNER IS AN AGENT OF THE FIRM AND HIS OTHER PARTNERS FOR THE
PURPOSE OF THE BUSINESS OF THE PARTNERSHIP;
AND THE ACTS OF EVERY PARTNER WHO DOES ANY ACT FOR CARRYING ON IN
THE USUAL WAY BUSINESS OF THE KIND CARRIED ON BY THE FIRM OF WHICH HE
IS A MEMBER BIND THE FIRM AND HIS PARTNERS,
UNLESS THE PARTNER SO ACTING HAS IN FACT NO AUTHORITY TO ACT FOR THE
FIRM IN THE PARTICULAR MATTER,
AND THE PERSON WITH WHOM HE IS DEALING EITHER KNOWS THAT HE HAS NO
AUTHORITY, OR DOES NOT KNOW OR BELIEVE HIM TO BE A PARTNER.
THE REFERENCE IN SECTION 5 TO CARRYING ON BUSINESS IN THE USUAL WAY
RAISES SUCH QUESTIONS AS DOES ONE PARTNER HAVE THE IMPLIED AUTHORITY
TO BORROW MONEY; INSURE THE PREMISES; CONVEY LAND; GIVE GUARANTEES;
SACK EMPLOYEES, ETC. IN THE COURSE OF THE FIRM'S BUSINESS.
THE AGENCY RELATIONSHIP IN PARTNERSHIPS:
THE FIRM (PARTNERS COLLECTIVELY) = THE PRINCIPAL
PARTNERS (INDIVIDUALLY) = AGENTS
IMPLIED AUTHORITY = ENTERING INTO TRANSACTIONS USUAL FOR THE KIND
OF BUSINESS.
SO LONG AS THE PARTNER IS ACTING WITHIN THE AUTHORITY IMPLIED BY
SECTION 5, HE/SHE WILL BIND THE FIRM, WHATEVER THE PARTNERS HAVE
PRIVATELY AGREED, UNLESS THE THIRD PARTY:
KNOWS OF THE RESTRICTION ON THE PARTNER'S AUTHORITY OR
DOES NOT KNOW THAT THE PERSON HE/SHE IS DEALING WITH IS A PARTNER,
I.E. BELIEVES HE/SHE IS DEALING WITH AN INDIVIDUAL.

12

RELATIONSHIP OF PARTNERS TO THIRD PARTIES

AS THIRD PARTIES ARE NOTPERMITTED TO INSPECT THE ARTICLES OF
PARTNERSHIP, THE COURT DOES NOT PRESUME THAT THIRD PARTIES KNOW THE
CONTENTS OF THE ARTICLES. NO MATTER WHAT THE ARTICLES OF PARTNERSHIP
MAY STATE WITH REGARD TO THE RELATION OF PARTNERS TO ONE ANOTHER, AN
ACT PERFORMED BY A PARTNER IN THE ORDINARY COURSE OF BUSINESS WILL
BIND THE FIRM AND ALL THE OTHER PARTNERS. THIS IS KNOWN AS JOINT AND
SEVERAL LIABILITY.
A DISTINCTION IS SOMETIMES DRAWN BETWEEN THE EXPRESS(OR ACTUAL) AND
IMPLIED(OR OSTENSIBLE) AUTHORITY OF A PARTNER: SEE BANK OF SCOTLAND V.
BUTCHER (2005).
EXPRESS OR ACTUAL AUTHORITY IS THAT CONFERRED UPON A PARTNER
BY THE TERMS OF THE ARTICLES OF PARTNERSHIP.

IMPLIED OR OSTENSIBLE AUTHORITY IS VESTED IN A PARTNER BY VIRTUE

OF HIS/HER STATUS AS A PARTNER, AND IS DETERMINED ENTIRELY BY
WHAT IS NECESSARY FOR THE USUAL SCOPE OF THE FIRM'S BUSINESS.
WHETHER THE ACT OF A PARTNER IS NECESSARY FOR THE USUAL
SCOPE OF THE BUSINESS IS A QUESTION OF FACT TO BE
DETERMINED BY THE NATURE OF THE FIRM'S BUSINESS AND BY THE
PRACTICE OF THE PERSONS ENGAGED IN IT.

IT IS USUAL FOR PARTNERSHIP ARTICLES TO CONTAIN A CLAUSE IMPOSING SOME

AGREED LIMITATIONS ON THE AUTHORITY OF CERTAIN OR ALL PARTNERS, E.G.
FORBIDDING JUNIOR PARTNERS TO NEGOTIATE LOANS ON BEHALF OF THE FIRM,
BUT REMEMBER THAT SUCH EXPRESS RESTRICTIONS HAVE NO EFFECT ON
OUTSIDERS DEALING WITH THE FIRM, UNLESS THE OUTSIDER KNOWS, OR
SHOULD KNOW, OF THE RESTRICTION.
THUS, IN MERCANTILE CREDIT CO. LTD V. GARROD (1962), P AND G WERE
PARTNERS IN A CAR REPAIR BUSINESS AND GARAGE. THE ARTICLES FORBADE
ANY BUYING AND SELLING OF CARS BY WAY OF TRADE. THE BUSINESS WAS RUN
BY P, AND G WAS A "SLEEPING" PARTNER WITH NO SHARE IN MANAGEMENT. P
SOLD A CAR TO M BY WAY OF TRADE, IN DEFIANCE OF THE ARTICLES AND
WITHOUT G'S KNOWLEDGE. M LATER FOUND THAT THE FIRM DID NOT OWN THE
CAR, AND CLAIMED COMPENSATION FROM G. IT WAS HELDTHAT G WAS LIABLE,
SINCE M WAS UNAWARE OF THE RESTRICTION IN THE ARTICLES AND P HAD
APPEARED TO BE ACTING WITHIN THE USUAL SCOPE OF A GARAGE BUSINESS.
A PARTNER HAS NO IMPLIED AUTHORITY TO BIND THE FIRM BY DEED (STEIGLITZ V.
EGGINTON (1815)) OR TO GIVE A GUARANTEE IN THE NAME OF THE FIRM (BRETTEL
V. WILLIAMS (1849)). IF A PARTNER, WITHOUT SPECIAL AUTHORITY, GIVES A
GUARANTEE OR SIGNS A BILL OF EXCHANGE, MAKES OR ENDORSES A
PROMISSORY NOTE, BORROWS MONEY, OR PLEDGES GOODS IN THE NAME OF
THE FIRM, THEN THE FIRM WILL NOT BE BOUND, AS THESE ACTS ARE NOT IN THE
USUAL COURSE OF THE BUSINESS OF THE FIRM. WITH A TRADING FIRM,
HOWEVER, ANY PARTNER MAY BIND THE FIRM ON BILLS OF EXCHANGE,
PROMISSORY NOTES, OR ON A CONTRACT TO BORROW MONEY ON BEHALF OF
THE FIRM.
(REMEMBER THAT THIS APPLIES TO TRADING FIRMS ONLY, I.E. FIRMS THE
BUSINESS OF WHICH IS THE BUYING AND SELLING OF GOODS.)
13

IN HIGGINS V. BEAUCHAMP (1914), BEAUCHAMP AND X CARRIED ON A

PARTNERSHIP BUSINESS AS OWNERS AND MANAGERS OF CINEMAS. THE
ARTICLES OF PARTNERSHIP FORBADE THE PARTNERS TO BORROW MONEY ON
THE FIRM'S BEHALF. X BORROWED MONEY FROM HIGGINS ON THE FIRM'S BEHALF.
THE FIRM WAS HELDNOT TO BE LIABLE, AS IT WASNOT A TRADING FIRM; X HAD,
THEREFORE, NO IMPLIED AUTHORITY TO BORROW ON THE FIRM'S BEHALF.
DESCRIBE THE WAYS OF TERMINATING OF PARTNERSHIP WITHOUT A COURT
ORDER
A PARTNERSHIP CAN BE DISSOLVED WITHOUTA COURT ORDER IN THE FOLLOWING
CIRCUMSTANCES:
(A)ON THE EXPIRY OF A FIXED TERM/ON THE COMPLETION OF A SPECIFIC
VENTURE:
SECTION 32(A) AND (B)
SUBJECT TO ANY AGREEMENT TO THE CONTRARY BETWEEN THE
PARTNERS, A PARTNERSHIP IS DISSOLVED IN ACCORDANCE WITH SECTION
35(A) IF ENTERED INTO FOR A FIXED TERM, BY THE EXPIRATION OF THAT
TERM.

MOREOVER, SUBJECT TO ANY AGREEMENT TO THE CONTRARY BETWEEN

THE PARTNERS, A PARTNERSHIP IS DISSOLVED IN ACCORDANCE WITH
SECTION 35(B) IF ENTERED INTO FOR A SINGLE ADVENTURE OR
UNDERTAKING, BY THE TERMINATION OF THE ADVENTURE OR
UNDERTAKING.
(B)ON THE GIVING OF NOTICE: SECTION 32(C)
SUBJECT TO ANY AGREEMENT TO THE CONTRARY BETWEEN THE
PARTNERS, A PARTNERSHIP IS DISSOLVED IF ENTERED INTO FOR AN
UNDEFINED TIME, BY ANY PARTY GIVING NOTICE TO THE OTHER OR
OTHERS OF HIS INTENTION TO DISSOLVE THE PARTNERSHIP.

A PARTNERSHIP FOR AN UNDEFINED TIME IN SECTION 35(C) MUST BE

READ IN THE LIGHT OF THE WORDING OF SECTION 35(A) AS INCLUDING
ONLY TOTALLY OPEN-ENDED AGREEMENTS.

(C)ON THE DEATH OR BANKRUPTCY OF ANY OF THE PARTNERS: SECTION 33

SUBJECT TO ANY AGREEMENT TO THE CONTRARY BETWEEN THE
PARTNERS, A PARTNERSHIP WILL DISSOLVE UPON THE DEATH OR
BANKRUPTCY OF ANY OF THE PARTNERS. (CONTRAST WITH THE
SITUATION IN REGISTERED COMPANIES, I.E. PERPETUAL SUCCESSION.
(D)ON THE OCCURRENCE OF EVENTS MAKING THE OBJECT OF THE PARTNERSHIP
ILLEGAL: SECTION 34
IN ACCORDANCE WITH SECTION 34 OF THE 1890 ACT A PARTNERSHIP IS IN
EVERY CASE DISSOLVED BY THE HAPPENING OF ANY EVENT WHICH MAKES
IT UNLAWFUL FOR THE BUSINESS OF A FIRM TO BE CARRIED ON OR FOR
THE MEMBERS OF THE FIRM TO CARRY IT ON IN PARTNERSHIP.

FOR EXAMPLE, IF PROHIBITION WERE INTRODUCED IN THE U.K., ALL

PARTNERSHIPS WHOSE OBJECT WAS TO SELL ALCOHOL WOULD BE
OPERATING ILLEGAL AND WOULD BE DISSOLVED IN ACCORDANCE WITH
SECTION 34. A PARTNERSHIP IS ALWAYS DISSOLVED BY ANY EVENT WHICH
MAKES IT UNLAWFUL EITHER FOR THE BUSINESS OF THE FIRM TO BE
CARRIED ON OR FOR THE MEMBERS OF THE FIRM TO CARRY ON IN
BUSINESS TOGETHER: R V. KUPFER (1915).

14

DESCRIBE THE SIX(6) WAYS OF TERMINATING OF PARTNERSHIP WITH A

COURT ORDER
EVEN IF THERE IS NOTHING (EITHER EXPRESS OR IMPLIED) IN A FIRM'S
PARTNERSHIP AGREEMENT, ONE PARTNER MAY APPLY TO THE COURT FOR A
DISSOLUTION ORDER UNDER ONE OF SIX HEADS SET OUT IN SECTION 35 OF THE
PARTNERSHIP ACT 1890, AS DESCRIBED BELOW.
(A)IF A PARTNER IS SUFFERING FROM A MENTAL DISORDER: SECTION 35(A)
THE PROCEDURE NOW IS THAT IF A PARTNER BECOMES A PATIENT UNDER THE
MENTAL HEALTH ACT 1983 (AS AMENDED BY THE MENTAL CAPACITY ACT 2005),
HIS/HER RECEIVER OR THE OTHER PARTNERS MAY APPLY TO THE COURT FOR A
DISSOLUTION WHICH CAN BE GIVEN IF THE PERSON IS INCAPABLE OF MANAGING
HIS/HER PROPERTY AND AFFAIRS.
(B)IF A PARTNER SUFFERS SOME OTHER PERMANENT INCAPACITY AND IS
PERMANENTLY INCAPABLE OF CARRYING OUT THE PARTNERSHIP AGREEMENT:
SECTION 35(B)
FOR EXAMPLE, IF HE BECOMES PERMANENTLY DISABLED AS A RESULT OF
AN ACCIDENT. SECTION 35(B) REFERS TO A PARTNER BECOMING IN ANY
WAY PERMANENTLY INCAPABLE OF PERFORMING HIS PART OF THE
PARTNERSHIP CONTRACT.
MOREOVER, FOR THIS SECTION TO OPERATE SUCCESSFULLY, THE
INCAPACITY MUST BE PERMANENT.
IT IS, OF COURSE, A QUESTION OF FACT IN EACH CASE AS TO WHETHER
THIS SITUATION HAS ARISEN.
(C)IF A PARTNER HAS BEEN FOUND GUILTY OF MISCONDUCT IN HIS BUSINESS OR
PRIVATE LIFE WHICH, IN THE OPINION OF THE COURT, IS LIKELY TO
PREJUDICIALLY AFFECT THE CARRYING ON OF THE BUSINESS : SECTION 35(C)
FOR EXAMPLE, IF HE IS CONVICTED OF THEFT.
HOWEVER, IN ORDER TO OPERATE SUCCESSFULLY, SECTION 35(C)
REQUIRES PROOF OF CONDUCT BY ONE PARTNER, WHICH THE COURT,
HAVING REGARD TO THE NATURE OF THE BUSINESS, REGARDS AS
CALCULATED TO PREJUDICIALLY AFFECT THE CARRYING ON OF THE
BUSINESS.
THE TEST IS OBJECTIVE, I.E. WOULD A CLIENT, KNOWING OF THIS CONDUCT,
HAVE MOVED AWAY FROM DEALING WITH THE BUSINESS.
(D)IF A PARTNER PERSISTENTLY BREACHES THE PARTNERSHIP AGREEMENT OR
MAKES IT IMPRACTICAL FOR THE OTHER PARTNERS TO CARRY ON BUSINESS
WITH HIM: SECTION 35(D)
HOWEVER, IN ORDER TO OPERATE SUCCESSFULLY, SECTION 35(D)
REQUIRES EVIDENCE THAT THE OFFENDING PARTNER WILFULLY OR
PERSISTENTLY COMMITS A BREACH OF THE PARTNERSHIP AGREEMENT, OR
OTHERWISE CONDUCTS HIMSELF IN MATTERS RELATING TO THE
PARTNERSHIP BUSINESS IN SUCH A WAY THAT IT IS NOT REASONABLY
PRACTICABLE FOR THE OTHER PARTNER OR PARTNERS TO CARRY ON THE
BUSINESS IN PARTNERSHIP WITH HIM.

THE PROBLEM FOR THE COURTS IN SUCH CASES IS TO AVOID THIS

DRACONIAN SOLUTION FOR PETTY INTERNAL SQUABBLES, WHILE AT THE
SAME TIME SEEKING TO END MATTERS IF THE OTHER PARTNERS IN THE
15

FIRM GENUINELY CANNOT CONTINUE IN PARTNERSHIP WITH THE PARTNER

CONCERNED,
AS DEMONSTRATED BY THE CASE OF CHEESEMAN V. PRICE (1865). IN THIS
CASE, THE OFFENDING PARTNER HAD FAILED TO ENTER SMALL SUMS OF
MONEY RECEIVED, THE FIRM'S CUSTOMERS INTO THE ACCOUNTS IN
ACCORDANCE WITH THE FIRM'S PARTNERSHIP AGREEMENT. THIS HAD
HAPPENED 17 TIMES AND WASHELD TO BE SUFFICIENT TO TIP THE SCALES
IN FAVOUR OF DISSOLUTION.

(E)IF THE BUSINESS IS BEING CARRIED ON AT A LOSS: SECTION 35(E)

STRAIGHTFORWARD COURT ORDER FOR DISSOLUTION WILL BE GRANTEDWHEN
THE BUSINESS CAN ONLY BE CARRIED ON AT A LOSS.

(F)IF ITIS JUST AND EQUITABLE TO DO SO: SECTION 35(F)

THIS HAS BEEN THE SUBJECT OF MANY SUCCESSFUL CASES IN COMPANY LAW
BECAUSE IT HAS A DIRECT COUNTERPART IN THE FORM OF SECTION 122(1)(G) OF
THE INSOLVENCY ACT 1986 AND HAS BEEN APPLIED BY ANALOGY TO JUSTIFY THE
WINDING-UP OF A SMALL LIMITED COMPANY OR QUASI-PARTNERSHIP SEE
EBRAHIMI V. WESTBOURNE GALLERIES LTD (1973). EXAMPLES OF
CIRCUMSTANCES WHERE IT WOULD BE JUST AND EQUITABLE TO DISSOLVE A
PARTNERSHIP INCLUDE:
REFUSAL TO MEET ON MATTERS OF BUSINESS.

CONTINUED INTERNAL QUARRELLING

THE EXISTENCE OF A STATE OF INTERNAL ANIMOSITY THAT PRECLUDES ALL

REASONABLE HOPE OF A RECONCILIATION AND FRIENDLY CO-OPERATION,
I.E. A BREAKDOWN IN TRUST AND CONFIDENCE.

WHERE ONE OF THE PARTNERS HAS BEEN WRONGFULLY EXCLUDED FROM

PARTICIPATING IN THE MANAGEMENT OF THE BUSINESS IN
CONTRAVENTION OF SECTION 24(5) OF THE 1890 ACT.

16

WHAT HAPPENS WHEN A PARTNERSHIP IS BANKRUPT?HOW SHOULD

CREDITORS DEAL WITH A BANKRUPT?
SINCE THE LIABILITY OF A GENERAL PARTNER EXTENDS TO THE WHOLE OF THE
DEBTS OF THE PARTNERSHIP, OR HE/SHE IS LIABLE JOINTLY WITH THE OTHER
PARTNERS, A CREDITOR IN THE BANKRUPTCY OF A PARTNERSHIP CAN PURSUE
ONE OF TWO COURSES.
PROCEED AGAINST THE PARTNERS JOINTLY, I.E. IN THE NAME OF THE FIRM.
- IF HE/SHE OBTAINS JUDGMENT AGAINST THE FIRM, THE DEBT MUST BE SATISFIED
OUT OF THE ASSETS OF THE FIRM.
-HOWEVER, IF THE ASSETS OF THE FIRM ARE INSUFFICIENT, THEN THE CREDITOR
CAN LOOK TO THE PRIVATE ASSETS OF THE PARTNERS IN ORDER TO SATISFY
HIS/HER DEBT.
PROCEED AGAINST ANY INDIVIDUAL PARTNER.
- IF HE/SHE OBTAINS JUDGMENT AGAINST A CERTAIN PARTNER AND THIS
JUDGMENT CANNOT BE SATISFIED OUT OF THE PRIVATE PROPERTY OF THAT
PARTNER, THEN THE CREDITOR CANNOT PROCEED AGAINST THE REMAINING
PARTNERS.

THE CREDITOR MUST PURSUE ONE COURSE OR THE OTHER. IF HE PURSUES

THE SECOND COURSE DESCRIBED ABOVE, THE PARTNER AGAINST WHOM THE
JUDGMENT IS OBTAINED WILL BE LIABLE TO PAY THE FULL AMOUNT. HOWEVER,
HE/SHE HAS A RIGHT TO CALL UPON THE OTHER PARTNERS TO CONTRIBUTE THE
SHARES THAT THEY SHOULD BEAR.

WHAT IS THE LEVEL OF LIABILITY OF NEW AND RETIRING PARTNERS FOR

PARTNERSHIP DEBTS
PAY PARTICULAR ATTENTION TOTHE FOLLOWING POINTS DEALING WITH THE
LIABILITY OF PARTNERS.
(A)INCOMING PARTNER
UNLESS A NEW PARTNER MAKES A SPECIAL AGREEMENT TO THE EFFECT
THAT HE/SHE WILL TAKE OVER THE LIABILITY IN RESPECT OF THE FIRM'S
DEBTS AT THE TIME OF HIS/HER JOINING THE FIRM,HE/SHE CANNOT BE
HELD LIABLE ON SUCH DEBTS.
IN THE ABSENCE OF SUCH AN AGREEMENT, THE NEW PARTNER CAN BE
HELD LIABLE ONLY IN RESPECT OF DEBTS INCURRED AFTERHE/SHE
BECAME A PARTNER IN THE FIRM.
(B)RETIRING PARTNER
A RETIRING PARTNER CAN BE HELD LIABLE ONLY IN RESPECT OF DEBTS
INCURRED BEFORE HIS/HER RETIREMENT, PROVIDED DUE NOTICE OF
RETIREMENT IS GIVEN.
IN OTHER WORDS, IF THIS NOTICE IS NOT GIVEN, A PARTNER IS LIABLE FOR
ANY DEBTS INCURRED BY THE FIRM AFTER HIS/HER RETIREMENT. AN
EXCEPTION TO THIS OCCURS WHERE, BY A SPECIAL AGREEMENT, A
PARTNER ARRANGES TO BE LIABLE FOR DEBTS INCURRED BY THE FIRM
AFTER HIS/HER RETIREMENT.
NOTE ALSO THAT AN AGREEMENT MAY BE MADE BETWEEN EXISTING CREDITORS
AND THE FIRM, WHEREBY THE FORMER AGREE TO DISCHARGE A RETIRING
PARTNER FROM ALL LIABILITY. HOWEVER, THERE MUST BE VALUABLE

17

CONSIDERATION TO SUPPORT SUCH AN AGREEMENT. THE MERE AGREEMENT OF

THE REMAINING PARTNERS TO BE HELD LIABLE FOR ALL DEBTS IS NOT
SUFFICIENT FOR THIS PURPOSE, AS THEY ARE ALREADY LIABLE.
IN TOWER CABINET CO. LTD V. INGRAM (1949), C AND I DISSOLVED THEIR
PARTNERSHIP BUT NO NOTICE WAS GIVEN OR ADVERTISEMENT PUBLISHED IN THE
GAZETTE. AFTER THIS DISSOLUTION, C ORDERED GOODS FROM T, USING THE
FIRM'S OLD NOTEPAPER WHICH SHOWED I AS A PARTNER. T DID NOT KNOW I WAS
A PARTNERBEFORE THE DISSOLUTION. IT WAS HELDTHAT I WAS NOT LIABLE TO T.
WHAT ARE THE RIGHTS OF PARTNERS ON DISSOLUTION
THE RIGHTS OF PARTNERS ON DISSOLUTION ARE USUALLY CONTAINED IN THE
ARTICLES OF PARTNERSHIP. WHERE THEY ARE NOT PROVIDED FOR IN THIS WAY,
THE FOLLOWING ARE THE MORE IMPORTANT PROVISIONS WHICH APPLY:
THE ASSETS OR PROPERTY OF THE FIRM MUST BE APPLIED IN PAYING OFF THE
CREDITORS OF THE FIRM
THE ASSETS REMAINING ARE TO BE APPLIED IN PAYING TO THE PARTNERS THE
AMOUNTS WHICH ARE DUE TO THEM AS PARTNERS
THE ASSETS OF THE PARTNERSHIP, TOGETHER WITH ANY AMOUNTS
CONTRIBUTED BY PARTNERS TO MAKE UP A DEFICIENCY, ARE TO BE DISTRIBUTED
AS FOLLOWS:
(I)IN PAYING OFF ALL CREDITORS OF THE FIRM WHO ARE NOT PARTNERS
(II)IN PAYING OFF RATEABLY ANY LOANS MADE BY PARTNERS TO THE FIRM, SUCH
LOANS BEING DISTINGUISHED FROM CAPITAL AND CARRYING 5% INTEREST PER
ANNUM
(III)IN PAYING RATEABLY TO THE PARTNERS THE AMOUNTS DUE TO THEM IN
RESPECT OF CAPITAL
(IV)IF ANY SURPLUS REMAINS, IT IS TO BE SHARED AMONG THE PARTNERS IN THE
PROPORTIONS IN WHICH THEY SHARE PROFITS.
WHERE THE ASSETS ARE SUFFICIENT TO PAY THE CREDITORS AND ANY LOANS
MADE TO THE FIRM BY THE PARTNERS, BUT INSUFFICIENT TO REPAY EACH
PARTNER HIS/HER FULL CAPITAL, THE RULE IN GARNER V. MURRAY
(1904)PROVIDES THAT THE DEFICIENCY IN CAPITAL IS TO BE BORNE BY THE
PARTNERS IN THE RATIO IN WHICH THE PROFITS ARE DIVISIBLE. IN THIS CASE, G,
M AND W WERE PARTNERS ON THE TERMS THAT PROFITS SHOULD BE DIVIDED
EQUALLY. THE CAPITAL WAS CONTRIBUTED UNEQUALLY, G CONTRIBUTING MORE
THAN M. ON DISSOLUTION, THE ASSETS, THOUGH SUFFICIENT TO PAY THE
CREDITORS, WERE INSUFFICIENT TO REPAY THE CAPITAL IN FULL. IT WAS
HELDTHAT THE TRUE PRINCIPLE OF DIVISION WAS FOR EACH PARTNER TO BE
TREATED AS LIABLE TO CONTRIBUTE A THIRD OF THE DEFICIENCY, AND THEN TO
APPLY THE ASSETS IN PAYING TO EACH PARTNER RATEABLY HIS SHARE OF
CAPITAL.

18

B.LIMITED LIABILITY PARTNERSHIPS

DEFINITION
ORDINARY LIMITED PARTNERSHIPS MAY BE FOUND UNDER THE LIMITED
PARTNERSHIP ACT 1907, TO BE SHARPLY DISTINGUISHED FROM THELIMITED
LIABILITY PARTNERSHIP ACT 2000 (AS SUPPORTED BY THE LIMITED LIABILITY
PARTNERSHIPS REGULATION 2001), SO AS TO INTRODUCE A NEW HYBRID TYPE OF
LEGAL VEHICLE. HOWEVER, ALTHOUGH CLASSED AS A HYBRID,
LIMITED LIABILITY PARTNERSHIPS (LLPS) BEAR A MUCH CLOSER RESEMBLANCE
TO A COMPANY THAN A PARTNERSHIP, AND TO THAT EXTENT THE TITLE OF THE ACT
IS PERHAPS SOMETHING OF A MISNOMER. THE ACT INTRODUCES A RADICAL
CHANGE IN BOTH A FIRMS LIABILITY AND THAT OF ITS PARTNERS, ITS MAIN
PURPOSE BEING TO CREATE A FORM OF LEGAL ENTITY KNOWN AS A LLP, WHICH
COMBINES THE ORGANISATIONAL FLEXIBILITY AND TAX STATUS OF A
PARTNERSHIP WITH LIMITED LIABILITY FOR ITS MEMBERS.
A LLP IS A SEPARATE LEGAL ENTITY WITH UNLIMITED CAPACITY; THIS MEANS THAT
A LLP CAN DO ANYTHING THAT A NATURAL PERSON COULD DO, HAVING THE
ABILITY, FOR EXAMPLE, TO HOLD PROPERTY, ENTER INTO CONTRACTS, EMPLOY
PEOPLEAND CONTINUE IN EXISTENCE DESPITE ANY CHANGE IN ITS MEMBERSHIP.
WHILE, IN LAW, A LLP IS DEEMED SEPARATE FROM ITS MEMBERS, SUCH MEMBERS
MAY, HOWEVER, BE LIABLE TO CONTRIBUTE TO ITS ASSETS IF IT IS WOUND UP,
THE EXTENT OF THAT POTENTIAL LIABILITY THAT BEING AS SPECIFIED UNDER THE
ACTS REGULATIONS (S.1 OF THE 2000 ACT).
INCORPORATION AND AGREEMENT
SECTION 2 OF THE ACT DEALS WITH INCORPORATION. IT REQUIRES THAT,WHERE
TWO OR MORE PERSONS ASSOCIATE FOR CARRYING ON A LAWFUL BUSINESS
WITH A VIEW TO PROFIT, THEY MUST HAVE SUBSCRIBED THEIR NAMES TO AN
INCORPORATION DOCUMENT, WHICH MUST BE DELIVERED TO THE REGISTRAR OF
COMPANIES, TOGETHER WITH A STATEMENT THAT ALL REQUIREMENTS HAVE BEEN
COMPLIED WITH.
IN LAW, "PERSON" INCLUDES INDIVIDUALS AND COMPANIES. HOWEVER, LLPS ARE
NOT AVAILABLE FOR ALL ACTIVITIES, SUCH AS NON-PROFIT MAKING ACTIVITIES.
HENCE, THERE ARE PRECISE PROVISIONS FOR THE REGISTRATION OF A LLP,
SIMILAR IN MANY RESPECTS TO THOSE NEEDED TO CREATE A NEW LIMITED
COMPANY. IN PARTICULAR, THIS SHOULD CONTAIN THE SITUATION OF THE
REGISTERED OFFICE AND ITS MEMBERS UPON INCORPORATION, AND WHETHER
SOME OR ALL ARE TO BE ITS DESIGNATED MEMBERS (SEE BELOW).
THE FIRST MEMBERS OF A LIMITED LIABILITY PARTNERSHIP ARE THOSE WHO
SIGNED THE INCORPORATION DOCUMENT. SUBSEQUENT TO INCORPORATION,
ANY PERSON MAY BECOME A MEMBER OF A LLP BY AGREEMENT WITH THE
EXISTING MEMBERS.
THERE IS NO LEGAL REQUIREMENT FOR THE MEMBERS OF AN LLP TO ENTER INTO
A WRITTEN AGREEMENT IN ORDER TO REGULATE RELATIONS BETWEEN THE
MEMBERS THEMSELVES AND BETWEEN THE MEMBERS AND THE LLP. IT IS,
HOWEVER, DESIRABLE TO HAVE SUCH AN AGREEMENT TO AVOID ANY DISPUTE. IT
SHOULD ALSO BE NOTED THAT THE DEFAULT PROVISIONS OF THE ACT AND
REGULATIONS DO NOT COVER ALL THE LIKELY ISSUES THAT NEED TO BE LAID
DOWN AT THE OUTSET, SUCH AS THE DETAILED MANAGEMENT, DECISION-MAKING
AND REMUNERATION ARRANGEMENTS, THE LEVEL OF AUTHORITY GIVEN TO
INDIVIDUAL MEMBERS, FINANCING ARRANGEMENTS AND THE DETAILS OF HOW
MEMBERS' ENTITLEMENTS ARE FIXED IF THEY LEAVE THE LLP, OR IF THE LLP IS
LIQUIDATED.
THUS, IT WOULD BE DESIRABLE FOR A LLP AGREEMENT TO CONTAIN A PROVISION
THAT IT CAN BE ALTERED BY A RESOLUTION PASSED BY A SPECIFIED MAJORITY OF

19

MEMBERS; IN THE ABSENCE OF SUCH A PROVISION, ANY ALTERATIONS WILL NEED

APPROVAL BY ALL MEMBERS.
THE LIABILITY OF MEMBERS ON LIQUIDATION SHOULD ALSO BE COVERED IN THE
AGREEMENT EITHER BY STATING IN CLEAR TERMS WHAT THE MAXIMUM LIABILITY
OF EACH MEMBER ON LIQUIDATION IS TO BE, OR BY STATING EXPRESSLY THAT A
MEMBER IS TO HAVE NO SUCH LIABILITY. IN THE ABSENCE OF AN AGREEMENT,
REGULATIONS MADE UNDER S.14 OF THE ACT (WHICH DEALS WITH
DISSOLUTION/INSOLVENCY) WOULD APPLY, LIMITING THE OBLIGATION OF
PARTNERS TOCONTRIBUTE ON INSOLVENCY TO THE AMOUNT THEY AGREED TO
CONTRIBUTE.
DESIGNATED MEMBERS
THE ACT PROVIDES FOR SOME OR ALL OF THE MEMBERS OF A LIMITED LIABILITY
PARTNERSHIP TO BE "DESIGNATED MEMBERS". IN GENERAL TERMS, THE ROLE OF
SUCH MEMBERS IS TO PERFORMTHE ADMINISTRATIVE AND FILING DUTIES OF THE
LLP. HOWEVER, SOME PROVISIONS OF THE COMPANIES ACT 2006 AND THE
INSOLVENCY ACT 1986, AS APPLIED BY THE REGULATIONS, PLACE ON THEM TASKS
THAT GO BEYOND THE MERE ADMINISTRATIVE, AND IN THE PERFORMANCE OF
WHICH THEY WOULD BE REPRESENTING ALL THE MEMBERS OF THE LLP, SUCH AS
THE SIGNING OF THE PARTNERSHIP'S ACCOUNTS; VARIOUS FUNCTIONS UNDER
THE INSOLVENCY ACT 1986, INCLUDING: GIVING A STATUTORY DECLARATION OF
SOLVENCY PRECEDING A MEMBERS' VOLUNTARY LIQUIDATION, AND MAKING A
STATEMENT OF AFFAIRS IN A CREDITOR'S VOLUNTARY LIQUIDATION.
A LLP MUST HAVE AT LEAST TWO DESIGNATED MEMBERS, AND IF NO MEMBER OR
ONLY ONE HAS BEEN SPECIFICALLY DESIGNATED, THEN ALL MEMBERS ARE
DESIGNATED MEMBERS.
DIFFERENCES BETWEEN AN LLP, A PARTNERSHIP AND A REGISTERED
COMPANY
AS STATED, THE LLP'S EXISTENCE AS A SEPARATE LEGAL ENTITY MAKES IT MORE
CLOSELY AKIN TO A COMPANY THAN TO A PARTNERSHIP (EXCEPT INSOFAR AS
INTERNAL RELATIONS ARE GOVERNED BY AGREEMENT BETWEEN THE MEMBERS).
THE ACT THEREFORE DRAWS ON THE PRINCIPLES EMBODIED IN LEGISLATION
PERTAINING TO COMPANIES.
BEING A BODY CORPORATE, PARTNERSHIP LAW WILL NOT (GENERALLY) APPLY TO
A LLP. HOWEVER, CERTAIN ELEMENTS OF PARTNERSHIP LAW MAY BE APPLIED TO
LLPS BY REGULATIONS; SUCH REGULATIONS WILL APPLY IN THE ABSENCE OF
AGREEMENT AS TO ANY MATTER CONCERNING THE MUTUAL OBLIGATIONS OF LLP
MEMBERS, OR LLP MEMBERS AND THE LLP ITSELF. THE MAIN DIFFERENCE IS THAT
A LIMITED LIABILITY PARTNERSHIP HAS THE ORGANISATIONAL FLEXIBILITY OF A
PARTNERSHIP AND IS TAXED AS A PARTNERSHIP. IN OTHER RESPECTS, IT IS VERY
SIMILAR TO A COMPANY. FOR EXAMPLE, A LLP HAS MEMBERS, BUT IT DOES NOT
HAVE ANY DIRECTORS OR SHAREHOLDERS.
IT DOES NOT HAVE ANY SHARE CAPITAL THIS MEANS THAT IT WILL NOT BE
SUBJECT TO THE COMPANYLAW RULES THAT GOVERN THE MAINTENANCE OF
SUCH CAPITAL. IN A LIMITED LIABILITY PARTNERSHIP THERE IS NO NEED FOR ANY
BOARD MEETINGS OR GENERAL MEETINGS; THERE IS NO DECISION-MAKING BY
WAY OF RESOLUTIONS.
HENCE, A LLP WILL BE OF INTEREST TO BUSINESSES WHERETHE MEMBERS WISH
TO HAVE LIMITED LIABILITY, BUT WHERE ALL THE MEMBERS WISH TO BE ABLE TO
PARTICIPATE IN THE MEMBERSHIP OF THE FIRM, AND WHERE THE LESS FORMAL
PARTNERSHIP STRUCTURE IS PREFERRED TO THE MORE FORMAL COMPANY
STRUCTURE (WITH TRANSFERABLE SHARES). ITS STRUCTURE IS, THEREFORE,
PARTICULARLY APPROPRIATE FOR PROFESSIONAL PRACTICES WISHING TO LIMIT
MEMBERS' LIABILITY.
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A LIMITED LIABILITY PARTNERSHIP DOES NOT HAVE A MEMORANDUM OF

ASSOCIATION OR ANY ARTICLES OF ASSOCIATION. AS THE MEMBERS HAVE
LIMITEDLIABILITY, THE PROTECTION OF THOSE DEALING WITH A LIMITED LIABILITY
PARTNERSHIP REQUIRES THAT THE PARTNERSHIP MAINTAINS ACCOUNTING
RECORDS, PREPARES AND DELIVERS AUDITED ANNUAL ACCOUNTS TO THE
REGISTRAR OF COMPANIES, AND SUBMITS AN ANNUAL RETURN IN A MANNER
SIMILAR TO COMPANIES. THE EXEMPTIONS THAT ARE AVAILABLE TO COMPANIES
ALSO APPLY TO LLPS. THE MEMBERS OF A LIMITED LIABILITY PARTNERSHIP HAVE
A LIMITED LIABILITY, BUT THE LLP ITSELF IS LIABLE FOR ALL THE DEBTS INCURRED
TO THE FULL EXTENT OF ITS ASSETS.THIS LIMITED LIABILITY IS ONLY POSSIBLE
BECAUSE A LLP IS A LEGAL PERSON, SEPARATE FROM ITS MEMBERS.
HOWEVER, A DISADVANTAGE OF ADOPTING LLP STATUS AS COMPARED WITH A
PARTNERSHIP MAINLY RELATES TO MATTERS PERTAINING TO DISCLOSURE. THE
NEED, IN THE CASE OF LLPS, TO ADOPT CORPORATE FINANCIAL REPORTING
STANDARDS SUBJECT TO A "TRUE AND FAIR" REQUIREMENT, AND TO FILE
ACCOUNTS AT COMPANIES HOUSE, INCLUDING A SPECIFIC REQUIREMENT TO
DISCLOSE THE SHARE OF PROFITS AND THE REMUNERATION OF THE MOST
HIGHLY PAID MEMBER, MAY BE REGARDED AS A SERIOUS DISADVANTAGE BY SOME
FIRMS.
FINANCIAL REGULATION
LLPS WILL BE REQUIRED TO PROVIDE FINANCIAL INFORMATION EQUIVALENT TO
THAT OF COMPANIES INCLUDING THE FILING OF ANNUAL ACCOUNTS. AMONG
OTHER THINGS, THEY WILL ALSO BE REQUIRED TO:
FILE AN ANNUAL RETURN;
NOTIFY ANY CHANGES TO THE LLP'S MEMBERSHIP;
NOTIFY ANY CHANGES TO THEIR MEMBERS NAMES AND RESIDENTIAL
ADDRESSES; AND
NOTIFY ANY CHANGE TO THE ADDRESS OF ITS REGISTERED OFFICE.
CONSEQUENTLY, A LLP IS GOVERNED BY COMPANY LAW (THE LLP HAS THE
SEPARATE LEGAL PERSONALITY AND LIMITED LIABILITY OF THE COMPANY, FOR
EXAMPLE), BUT OFTEN ADAPTED TO ITS OWN PARTICULAR NEEDS, RATHER THAN
BY THE STRICT LAW OF PARTNERSHIP, EXCEPT IN TWO IMPORTANT ASPECTS. THE
EXCEPTIONS ARE IN RESPECT OF TAXATION (WHERE MEMBERS ARE TAXABLE AS
IF THEY WERE PARTNERS), AND THE INTERNAL DECISION-MAKING
ARRANGEMENTS, WHERE THE DIVISIONS BETWEEN MEMBERS AND DIRECTORS IS
NOT FOLLOWED (IN ESSENCE, DIRECTORS DO NOT EXIST, AND ALL MEMBERS ARE
PRIMA FACIEENTITLED TO BEINVOLVED IN THE MANAGEMENT OF THE LLP), WITH
MEMBERS HAVING THE SAME FREEDOM AS IN A PARTNERSHIP TO DECIDE ON THE
VARIOUS FORMS OF THEIR INTERNAL DECISION-MAKING PROCEDURES.
N.B. ONE SIGNIFICANT SIMILARITY, HOWEVER, LIES IN THE FACT THAT THE
PROFITS ARE NOT SUBJECT TO CORPORATION TAX. LLP MEMBERS ARE TAXED ON
PROFITS IN THE SAME WAY AS PARTIES IN AN ORDINARY PARTNERSHIP I.E.
THERE IS LIABILITY FOR INCOME TAX ON ANY PROFITS RECEIVED.
WHAT ARE THE DUTIES AND RIGHTS OF MEMBERS
THE RIGHTS AND DUTIES OF THE MEMBERS OFA LLP INTER SEAND TO THE
PARTNERSHIP ITSELF ARE GOVERNED BY THE PROVISIONS OF ANY AGREEMENT
BETWEEN THE MEMBERS, SUBJECT TO THE PROVISIONS OF ANY ENACTMENT.
TO THE EXTENT THAT THERE IS NOT SPECIFIC AGREEMENT ON ANY MATTER, THE
MUTUAL RIGHTS AND DUTIES OFTHE LLP AND ITS MEMBERS WILL BE GOVERNED
BY DEFAULT REGULATIONS MADE UNDER SECTION 15 (C). THE FOLLOWING
PROVISIONS HAVE BEEN LAID DOWN IN REGULATION 7:
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ALL THE MEMBERS ARE ENTITLED TO SHARE EQUALLY IN THE CAPITAL AND
PROFITS OF THE PARTNERSHIP.
THE LLP MUST INDEMNIFY EACH MEMBER IN RESPECT OF PAYMENTS MADE
AND PERSONAL LIABILITIES INCURRED BY THAT MEMBER IN THE ORDINARY AND
PROPER CONDUCT OF ITS BUSINESS, OR IN OR ABOUT ANYTHING NECESSARILY
DONE FOR THE PRESERVATION OF THE BUSINESS OR ITS PROPERTY.
EVERY MEMBER IS ENTITLED TO TAKE PART IN ITS MANAGEMENT, AND NO
MEMBER WILL BE ENTITLED TO REMUNERATION FOR ACTING IN THE BUSINESS OR
MANAGEMENT OF THE PARTNERSHIP.
NO PERSON MAY BE INTRODUCED AS A MEMBER OR VOLUNTARILY ASSIGN AN
INTEREST IN IT WITHOUT THE CONSENT OF ALL EXISTING MEMBERS.
ANY DIFFERENCE ARISING AS TO ORDINARY MATTERS CONNECTED WITH ITS
BUSINESS MAY BE DECIDED BY A MAJORITY OF THE MEMBERS, BUT NO CHANGE
MAY BE MADE IN THE NATURE OF ITS BUSINESS WITHOUT THE CONSENT OF ALL
THE MEMBERS.
THE BOOKS AND RECORDS OF THE LLP ARE TO BE MADE AVAILABLE FOR
INSPECTION AT ITS REGISTERED OFFICE, OR AT ANY OTHER PLACE AS THE
MEMBERS THINK FIT; ALL MEMBERS ARE TO HAVE ACCESS TO, AND INSPECT/COPY
ANY OF THEM.
EACH MEMBER SHALL RENDER TRUE ACCOUNTS AND FULL INFORMATION OF ALL
THINGS AFFECTING THE PARTNERSHIP TO ANY MEMBER OR A MEMBER'S LEGAL
REPRESENTATIVES. A MEMBER WHO, WITHOUT THE CONSENT OF THE LIMITED
LIABILITY PARTNERSHIP, CARRIES ON ANY BUSINESS OF THE SAME NATURE AS
AND COMPETING WITH THE PARTNERSHIP, MUST ACCOUNT FOR AND PAY OVER TO
IT ALL PROFITS MADE BY THAT MEMBER IN THAT BUSINESS. ALL MEMBERS MUST
ACCOUNT TO THE PARTNERSHIP FOR ANY BENEFIT DERIVED BY THEM WITHOUT
ITS CONSENT FROM ANY TRANSACTION CONCERNING THE PARTNERSHIP, OR
FROM ANY USE BY THEM OF ITSPROPERTY, NAME OR BUSINESS CONNECTION.
SECTION 4(4) DISTINGUISHES EMPLOYEES FROM PARTNERSAND MEMBERS OF A
LLP WILL NOT BE REGARDED AS EMPLOYEES: SEE THE CASE OF KOVATS (2009). IT
IS POSSIBLE TO BE A DIRECTOR AND/OR SHAREHOLDER OF A COMPANY AND ALSO
AN EMPLOYER, BUT A LLP IS DIFFERENT.

MEMBERS AS AGENTS
EACH MEMBER OF A LLP IS AN AGENT OF THAT PARTNERSHIP; IT FOLLOWS,
THEREFORE, THAT EACH MEMBER MAY REPRESENT/ACT ON ITS BEHALF IN ALL ITS
BUSINESS CONCERNS.
A LLP IS NOT, HOWEVER, BOUND BY THE ACTIONS OF A MEMBER WHERE THAT
MEMBER HAS NO AUTHORITY TO ACT FOR THE LLP, AND THE PERSON DEALING
WITH THAT MEMBER IS AWARE OF THIS, OR DOES NOT KNOW OR BELIEVE THAT
THE MEMBER WAS IN FACT A MEMBER OF THE PARTNERSHIP. TRANSACTIONS
WITH A PERSON WHO IS NO LONGER A MEMBER OF A LLP ARE STILL VALID
TRANSACTIONS WITH THE LLP, UNLESS THE OTHER PARTY HAS BEEN TOLD THAT
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THE PERSON IS NO LONGER A MEMBER, OR THE REGISTRAR HAS RECEIVED A

NOTICE TO THAT EFFECT. WHERE A MEMBER OF A LLP IS LIABLE TO A PERSON
(OTHER THAN ANOTHER MEMBER OF THE LLP) FOR A WRONGFUL ACT/OMISSION IN
THE COURSE OF THE LLPS BUSINESS OR WITH ITS AUTHORITY, THE PARTNERSHIP
ITSELF WILL BE LIABLE TO THE SAME EXTENT AS THE MEMBER.
THE LAW RELATING TO OSTENSIBLE AUTHORITY APPLIES EQUALLY TO
TRANSACTIONS ENTERED INTO BY A PARTNER: A CONTRACT ENTERED INTO BY
ANY PARTNER WILL BIND THE LLP, UNLESS THERE WAS AN ABSENCE OF SUCH
AUTHORITY KNOWN TO THE THIRD PARTY. IN PRACTICE, NEGLIGENT MEMBERS
WILL NOT OFTEN BE PERSONALLY LIABLE TO THIRD PARTIES FOR ANY LOSS
CAUSED BY THEIR NEGLIGENCE. PERSONAL LIABILITY WILL, THEREFORE, ONLY
OCCUR WHEN IT APPEARS FROM THE CIRCUMSTANCES THAT THE NEGLIGENT
MEMBER WAS UNDERTAKING A PERSONAL DUTY TO THE THIRD PARTY. IF ACTING
AS AN AGENT OF THE FIRM, THEN ONLY THE LLPS ASSETS WILL BEAT RISK; NONE
OF THE MEMBERS WILL HAVE PERSONAL LIABILITY.
IN GENERAL, THEREFORE, ANY THIRD PARTY WOULD USUALLY CONTRACT WITH
THE LLP RATHER THAN WITH THE MEMBERS THEMSELVES, SINCE IN THOSE
CIRCUMSTANCES IT WOULD BE THE LLP WHICH IS LIABLE. IT WOULD, HOWEVER,
UNDER CERTAIN CIRCUMSTANCES, BE POSSIBLE TO BRING A CLAIM FOR
ECONOMIC LOSS AGAINST AN INDIVIDUAL MEMBER WHO HAS BEEN NEGLIGENT.
ANY SUCH CLAIM WOULD BE A CIVIL ACTION OUTSIDE THE CONTRACT, AS THE
PARTY WOULD HAVE CONTRACTED WITH THE LLP. RECENT CASE LAW SUGGESTS
THAT THE COURTS WOULD, WHEN REACHING ANY DECISION AS TO WHETHER A
MEMBER WAS POTENTIALLY LIABLE TO A CLIENT, HAVE REGARD AS TO WHETHER
OR NOT THE LLP MEMBER ASSUMED PERSONAL RESPONSIBILITY FOR THE
ADVICE, WHETHER THE CLIENT RELIED ON THE ASSUMPTION OF RESPONSIBILITY,
AND WHETHER SUCH RELIANCE WAS REASONABLE IN ALL THE CIRCUMSTANCES.
SEE: WILLIAMS AND ANOTHER V. NATURAL LIFE HEALTH FOODS LTD AND
RICHARD MUSTLIN.
NOTE THAT THIS IS DIFFERENT FROM THE SITUATION WITH A NORMAL
PARTNERSHIP WHERE THE THIRD PARTY WOULD CONTRACT WITH A PARTNER AS
THE PRINCIPAL FOR AND ON BEHALF OF THE OTHER PARTNERS IN THE
PARTNERSHIP.

TERMINATION OF MEMBERSHIP
A PERSON MAY CEASE TO BE A MEMBER BY DEATH, DISSOLUTION OR IN
ACCORDANCE WITH ANY AGREEMENT WITH THE OTHER MEMBERS OF THE LLP.
WHERE THERE IS NO AGREEMENT, A MEMBER MAY CEASE TO BE A MEMBER BY
GIVING REASONABLE NOTICE TO THE OTHER MEMBERS.
A FURTHER DEFAULT PROVISION HAS BEEN LAID DOWN IN REGULATION 8: NO
MAJORITY OF THE MEMBERS CAN EXPEL ANY MEMBER, UNLESS SUCH A POWER
HAS BEEN EXPRESSLY CONFERRED BETWEEN THE MEMBERS.
WHERE A PERSON CEASES TO BE A MEMBER OF A LLP, OR THAT PERSON'S
INTEREST IN THE LLP IS TRANSFERRED TO ANOTHER PERSON, THE FORMER
MEMBER, THE MEMBER'S PERSONAL REPRESENTATIVES, THE MEMBER'S TRUSTEE
IN BANKRUPTCY/LIQUIDATOR OR THE TRUSTEES UNDER THE TRUST DEED FOR
THE BENEFIT OF THE CREDITORS/ASSIGNEE MAY NOT INTERFERE WITH THE
MANAGEMENT/ADMINISTRATION OF THE LLP, BUT MAY RECEIVE ANY AMOUNT TO
WHICH THEY ARE ENTITLED.
TO DATE, THE LLP FORM HAS PROVED REASONABLY ATTRACTIVE, ESPECIALLY
FOR PROFESSIONAL BUSINESSES, IN THAT:
THERE IS FAR LESS PUBLIC SCRUTINY, AS THE PARTNERSHIP AGREEMENT
ITSELF REMAINS CONFIDENTIAL AS BETWEEN THE PARTNERS

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THE MANIPULATION OF SHARES BETWEEN PARTNERS MAY BE EASIER TO

CONTROL
CHANGES IN THE MEMBERSHIP OF A LLP MAY BE EFFECTED WITH SOME EASE
EASIER DESIGNATION OF PARTNERSHIP ROLES.

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