#3244 - Nature Of Partnerships - Business Law and Practice

Partnerships

The Nature of partnerships

Definition of Partnership

S.1 Partnership Act 1890

The relation which subsists between

Persons

Actual or legal – therefore partnerships can be between 2 companies)

Carrying on a business in common

S.45 :A Partnership can include“every trade, occupation or profession”.

Khan v Miah – Indian restaurant getting ready for trading was still considered to be work of a business even though not yet trading

With a view to profit

Partners must only intend for business as a WHOLE to make a profit. Not individual partner to make a profit.

Young v Zahid: One Partner did not get fixed share of profit, received a set amount instead. Still intended the partnership to make a profit. Therefore a Partnership existed.

Conduct = Davis v Davis [1894]: conduct meant that there was a partnership – the drawing of identical sums of money implied that the 2 sons had agreed to share profits – they were therefore in partnership.
Pratt v Strick – no partnership by selling property then seller helping out the buyer in return for payment [i.e. doctor’s were sharing profit whilst doctor 1 helped introduce clients to doctor 2]
No requirement that profit is actually obtained
Person taking a SHARE of PROFITS – see S.2(3)(a-e) PA: lists 5 situations where it is presumed that a person receiving a share is NOT a partner.
Always look at the evidence AS A WHOLE! Does the evidence comply with the definition?

NB. There must be agreement to carry on business in common with view to make a profit. [Written or otherwise]. People can be in partnership without having agreed to a partnership – but they must agree to the definition of a partnership in some form.

Commencement date

A partnership is established as soon as S.1 definition is satisfied.
S.1 definition is decided when the partnership commenced, not any agreement to the contrary between the parties [Khan v Miah (2000)]
S.2: rules for determining existence of partnership. Sets out what does / does not in itself create a partnership e.g. Join owned property does not in itself create a partnership. [David v Davis]

Nature of a partnership

Partnership does NOT have a separate legal existence (it is different from a company)

Every partner is an agent of the firm AND an agent to each partner for the purposes of the business. [S.5 PA].

Each partner acts with an Implied power to bind the partners when acting in the usual course of business. Therefore very important to set out what the nature of the business includes. To limit implied power to bind the partnership.

Partners have statutory rights and duties to each other – provided by the PA 1980:

Rights:

S.24

Rules as to interests and duties of partners (subject to special agreement).

(1) Right to share equally in profits & capital. Duty to contribute to losses

(3) A partner putting forward any payment or advance beyond his capital contribution has a right to interest (5% per annum)

(5) A right to take part in the management of the business

(7)A right to be consulted should a new partner be introduced into the business

(8) A right to be consulted about the change in nature of the business

(9) A right to inspect the books

S.25

Expulsion of a partner – no partner can be expelled save for unanimous agreement of all partners

S.26

Retirement at will – any partner can retire and partnership will end

Duties:

S.28	Duty to render accounts – p under a duty to show accounts and all things effecting the partnership
S.29	Accountability of partners for private profit – P must account for that profit to all partners
S.30	Duty not to compete with the firm – P cannot carry out business of same nature without all partners’ consent.

Formalities for setting up a partnership

No formalities necessary.

‘Partnership’ means no more than a business relationship based on agreement (i.e. a contract).
The agreement can be oral, or in writing, or implied by conduct.

Therefore, partnership can be formed so long as each party has contractual capacity.

Are there any professional restrictions? E.g. one party is limited by their restriction not to compete in same line of work as original partnership? [S.30 PA 1890]

Partnership Names

Part 41 Companies Act 2006 [Sections 1192-1202]

S.1192: If Partnership name consists simply of partner’s surnames [or a permitted addition e.g. Initials / forenames / the addition of “S” to surnames of the partners] - the restrictions in the 2006 Act will not apply.

S.1193: Name that is likely to give impression that business is connected with HM Government or local authority or public authority – requires Approval of Secretary of State before name can be registered.

S.1194: Approval of SoS for other sensitive words or expressions. Check Company, LLP and Business Names (Sensitive Words and Expressions) Regulation 2009. Schedule One and two lists words. [Approval of SoS or Government Department]. Criminal offence if approval is not sought.

Company and Business Names (Miscellaneous Provisions) Regulations 2009 – cant use LLP, PLC or ‘limited company’ if it is not correct.

S.1196: Public policy – allows SoS to withdraw approval of name

S.1197: Offence to carry on business under a name using statutory indicators of legal status.

S.1198: business names that give misleading indication of the...

#3244 - Nature Of Partnerships - Business Law and Practice

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