Partnership
Definition: Type of business organization with view to profit
Can be very small all the way to very large
Some bodies are required to work as partnerships, others choose to.
Pros and Cons of Partnership
Pro:
o Lack of formality when setting up a partnership, informality
o Affairs can remain private. E.g. how much does the top partner earn.
o Flexibility, partners decided on their own management and organization.
o These are the default rules if the partners have not decided otherwise.
Con:
o Unlike companies they cannot grant securities over their property
o In companies ownership can easily transferred in shares, that’s not possible in
partnerships. This can make it difficult to have many partners.
o Partners have unlimited joint and individual liability for the partnership.
In some cases there no such big a difference between the two models in reality.
There is also the option of a limited liability partnership.
Partnerships are governed by the Partnership Act 1990
There is a lot of autonomy for the individual partners.
The topic partnerships can be but into 4 broad categories:
o Nature of partnership
o Relation of partnership
o The relationship between the partners
o Dissolution of partnership
Nature of Partnership
Everyone’s involved in the benefits as well as the losses of the business.
Section 1(1) of the Partnership Act 1990 defines a partnership.
o Parties have to carry on business with a view of making profit. This will prevent certain
organization from becoming a partnership.
Section 4 describes “business”
Section 1(2) defines that relationships between members of a company is not a partnership
A Partnership can be constituted in writing, but does not have to.
o It can also be constituted orally or be inferred from the actions of the parties.
Khan v Miah:
o Number of claimants and defendants. They came together to run a restaurant. For that
reason premises were obtained and stuff was done on the premises. The relationship
broke down before they opened. Was there a partnership? The judge of first instance
, said yes. On appeal this was overturned on the ground that there was not trade. This
then went to the House of Lords.
o Held: The HL disagreed with the appeal. It argued that embarking into the activity and
entering into transactions in the name of the partnership was sufficient. It was argued
that these transactions were all made with a view to profit and that was enough.
Christie Owen & Davies plc v Raobge:
o Applied Khan and ruled that buying the premises was enough to constitute a
partnership.
The Pine Energy case sets out some features to identify whether there is a partnership.
Now section 2 of the acts sets out guidelines whether there is a partnership:
o Joint tenancy
o Owning joint property
Note that these things are not enough by themselves, but they are one of several indicator’s.
Sharpe v Carowell:
o Ms. Sharpe sought compensation for her husband’s death. The husband was the
employee of the defender. The defender argued because Mr. Sharpe owned shared of
the company he was not merely and employee. The court ruled that mere ownership of
shares was not enough to become a partner.
Section 2: Sharing of gross returns does not in itself conclude partnership, see for example Clark
v Jamieson:
o Husband worked on fishing boat. Mr. Clark was paid by given a part of the gross earning
of the boat. This was deemed not enough to constitute a partnership. He did not have a
say on how the company was to be run and he was not liable for the company’s debts.
If you share the profit you are prima facie a partner.
o Exception: If you are a creditor and you are repaid in installments, this does not make
you a partner.
o Employees and agents who are paid from the profits are also not partners.
o Where a load is made to a partnership and the interest is paid through the profit or a
share of the profit that does not make you a partner either.
Sections 4(2): Separate legal personality of the firm applies to Scotland and is set out that in
Scotland a partnership is a separate legal entity from the parties.
This means that partnership can enter into contracts and sue before court.
Formalities of a Partnership
Companies Act 2006 s. 1192-1198
o You use the first names or surnames of the partners. For other names there are certain
limitations. You cannot resemble a government or a local authority and you also need
approval of the Secretary of State for sensible words such as bank or group.
People dealing with a partnership must also be able to know who the partners are.
S. 9 of the Partnership Act 1990 sets out that partners are jointly and separately liable for all of
the debts of the partnership. This might include personal assets.
Definition: Type of business organization with view to profit
Can be very small all the way to very large
Some bodies are required to work as partnerships, others choose to.
Pros and Cons of Partnership
Pro:
o Lack of formality when setting up a partnership, informality
o Affairs can remain private. E.g. how much does the top partner earn.
o Flexibility, partners decided on their own management and organization.
o These are the default rules if the partners have not decided otherwise.
Con:
o Unlike companies they cannot grant securities over their property
o In companies ownership can easily transferred in shares, that’s not possible in
partnerships. This can make it difficult to have many partners.
o Partners have unlimited joint and individual liability for the partnership.
In some cases there no such big a difference between the two models in reality.
There is also the option of a limited liability partnership.
Partnerships are governed by the Partnership Act 1990
There is a lot of autonomy for the individual partners.
The topic partnerships can be but into 4 broad categories:
o Nature of partnership
o Relation of partnership
o The relationship between the partners
o Dissolution of partnership
Nature of Partnership
Everyone’s involved in the benefits as well as the losses of the business.
Section 1(1) of the Partnership Act 1990 defines a partnership.
o Parties have to carry on business with a view of making profit. This will prevent certain
organization from becoming a partnership.
Section 4 describes “business”
Section 1(2) defines that relationships between members of a company is not a partnership
A Partnership can be constituted in writing, but does not have to.
o It can also be constituted orally or be inferred from the actions of the parties.
Khan v Miah:
o Number of claimants and defendants. They came together to run a restaurant. For that
reason premises were obtained and stuff was done on the premises. The relationship
broke down before they opened. Was there a partnership? The judge of first instance
, said yes. On appeal this was overturned on the ground that there was not trade. This
then went to the House of Lords.
o Held: The HL disagreed with the appeal. It argued that embarking into the activity and
entering into transactions in the name of the partnership was sufficient. It was argued
that these transactions were all made with a view to profit and that was enough.
Christie Owen & Davies plc v Raobge:
o Applied Khan and ruled that buying the premises was enough to constitute a
partnership.
The Pine Energy case sets out some features to identify whether there is a partnership.
Now section 2 of the acts sets out guidelines whether there is a partnership:
o Joint tenancy
o Owning joint property
Note that these things are not enough by themselves, but they are one of several indicator’s.
Sharpe v Carowell:
o Ms. Sharpe sought compensation for her husband’s death. The husband was the
employee of the defender. The defender argued because Mr. Sharpe owned shared of
the company he was not merely and employee. The court ruled that mere ownership of
shares was not enough to become a partner.
Section 2: Sharing of gross returns does not in itself conclude partnership, see for example Clark
v Jamieson:
o Husband worked on fishing boat. Mr. Clark was paid by given a part of the gross earning
of the boat. This was deemed not enough to constitute a partnership. He did not have a
say on how the company was to be run and he was not liable for the company’s debts.
If you share the profit you are prima facie a partner.
o Exception: If you are a creditor and you are repaid in installments, this does not make
you a partner.
o Employees and agents who are paid from the profits are also not partners.
o Where a load is made to a partnership and the interest is paid through the profit or a
share of the profit that does not make you a partner either.
Sections 4(2): Separate legal personality of the firm applies to Scotland and is set out that in
Scotland a partnership is a separate legal entity from the parties.
This means that partnership can enter into contracts and sue before court.
Formalities of a Partnership
Companies Act 2006 s. 1192-1198
o You use the first names or surnames of the partners. For other names there are certain
limitations. You cannot resemble a government or a local authority and you also need
approval of the Secretary of State for sensible words such as bank or group.
People dealing with a partnership must also be able to know who the partners are.
S. 9 of the Partnership Act 1990 sets out that partners are jointly and separately liable for all of
the debts of the partnership. This might include personal assets.
