LAW OF PARTNERSHIPS

MAUBARAKAHMAD BOODHUN LONDON COLLEGE OF ACCOUNTANCY PORT LOUIS - MAURITIUS

WHAT IS A PARTNERSHIP ?
A partnership is a relationship which subsists between two or more persons carrying on a business in common with a view to profit: s1 Partnership Act 1890 (PA 1890).

TYPES OF PARTNERSHIP

CHARACTERISTICS OF A PARTNERSHIP
It is a relationship and as such cannot have separate legal personality as opposed to a company or a corporation. This absence of legal personality and the lack of limited liability of the partners is confused by the way in which partnerships are treated . Thus the firm can sue in its own name but any judgment against the partnership is binding on the partners. ( Keith Spicer Ltd v Mansell )

Keith Spicer Ltd v Mansell

C A S E

Mr Mansell and Mr Spicer decided to go into business together and to form a limited company which was going to carry on the business of Mr Mansell's restaurant. Mr Bishop ordered goods from the plaintiffs so that they could be used by the company after it had been formed, which it eventually was. The goods were not paid for, and the plaintiffs sued Mr Mansell for the price on the ground that a partnership existed between Mr Mansell and Mr Bishop. The action failed. The Court of Appeal held there was no evidence that Mansell and Bishop were carrying on business together with a view to profit. As Harman, LJ said, "they were preparing to carry on business as a company as soon as they could. I think that the learned county court judge was justified in saying that they never intended to be partners and that therefore they were not partners because they never carried on business as such."

CHARACTERISTICS OF A PARTNERSHIP
the existence of a business Carried on in Common with a view of profit

The existence of a business

Partnership must involve some form of commercial venture. That is the partnership must be limited to a commercial aim. Unlike registered companies which can have a charitable purpose and non commercial aim, a partnership cannot exist for a charitable purpose.

NO PARTNERSHIP
joint or common interest in property or part ownership of property does not of itself create a partnership as to the property s.2(1) 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. s.2(2) If a person receives a share of the net profits of a business, this is prima facie evidence that he is a partner in the business, but it does not of itself make him a partner in the business. s.2(3)

Cox v Coulson [1916]

C A S E

Coulson, the manager of a theatre, entered into an agreement for the performance of a play at his theatre with Mill, the manager of a theatrical company, whereby Coulson was to provide the theatre and pay for the lighting and advertising in exchange for 60% of the gross receipts from the ticket sales. A member of the audience was injured by one of the actors during a performance, and she sought to recover damages from Coulson on the grounds that he and Mill were partners, and so jointly and severally liable for her injuries. Held there was no partnership between them; this was merely an arrangement to share gross returns.

THE BUSINESS MUST BE CARRIED ON IN COMMON

Partnership requires participation of at least two persons - can be either natural or legal persons. The distinction that is important here is between merely being connected with the business in some capacity and participating actively within it. SAYWELL V POPE BRITTON V COMMISSIONER OF CUSTOMS AND EXCISE

with a view of profit

Parties must intend to make a profit. The major criteria for establishing a partnership is sharing of profits from the business. However, this is not conclusive evidence. The sharing of losses is conclusive evidence that there is a partnership in existence.

TYPES OF PARTNERS

FORMATION OF THE PARTNERSHIP

Partnership is a consensual agreement and has no specific requirements for formation - can be formed orally, in writing or by inference from circumstances. The partnership agreement is a contract. Like any contract it may be:
express (e.g. oral, in writing or by deed), or Implied

The partners are contractually bound by the terms they have agreed, even if they conflict with PA 1890.

Who can be partners ?

(a) Young Persons Person aged 16 or over has full contractual capacity to enter into partnership agreement. (b) Persons of Unsound Mind Partnership agreement would be void if person was of unsound mind when he entered into to it. Person of unsound mind will be treated as never having been a partner and partnership debts could not be enforced against him. Corporation A limited liability company can be a partner if authorised by its memorandum. (d) Minor A minor can be a partner but can repudiate the agreement at any time during minority or during a reasonable time after majority, but would be unable to recover any money paid under there was a total failure of consideration ( Steinberg v Scala ( leeds) Ltd )

LIMITED PARTNERSHIPS
CREATED UNDER THE LIMITED PARTNERSHIP ACT 1907 This Act allows some partners to have limited liability for the debts and obligations of the firm. The 1907 Act allows a firm to have two kinds of partners: General Partners: Have the right to act on the firm's behalf and manage the partnership business, but also have unlimited liability for the firm's debts and obligations. Limited Partners: Contribute capital and receive a share of the profits, but have no right to act on the firm's behalf or take part in the management of the firm's business. These partners are only liable to the extent of the capital they have contributed to the firm. A limited partnership must have at least one general partner. The partnership must be registered with the Registrar of Companies. The registration must show the name of the firm and the nature of its business, the names of all the partners and a statement as to which of the partners have limited liability.

AUTHORITY OF PARTNERSAGENCY RELATIONSHIP

s.5 - "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 of 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."

AUTHORITY OF PARTNERS
When entering into a contract to carry out the business, each partner is acting as the agent of all the partners:
The actual authority of a partner is set out in the partnership agreement. The apparent authority is set out in s5 PA 1890. S5 PA 1890 states that every partner is the agent of the firm and of the other partners. This means that each partner has the power to bind all partners to business transactions entered into within their actual or apparent authority.

APPARENT AUTHORITY OF A PARTNER

Under s5 PA 1890 every partner is presumed to have the implied or apparent authority to: sell the firms goods buy goods necessary for, or usually employed in, the business receive payments of debts due to the firm engage employees employ a solicitor to act for the firm in defence of a claim or in the pursuance of a debt.

AUTHORITY OF THE PARTNER

The Firm (partners collectively) = the principal Partners (individually) = agents Implied authority = entering into transactions usual for the kind of business. So long as partner is acting within the authority implied by s.5, he will bind the firm, whatever the partners have privately agreed, unless the third party:
(a) Knows of the restriction on the partners authority, or (b) Does not know that the person he is dealing with is a partner. (i.e. believes he is dealing with an individual).

Scope of partners authority "carrying on business in the usual way" depends on the kind of business.

LIMITATION ON IMPLIED AUTHORITY

No partner has implied authority to: - give a guarantee in the firms name - submit a dispute to arbitration - accept property rather than cash as payment - enter the firm into partnership with another business

TRADING PARTNERSHIPS
The above implied powers apply to both trading and non-trading partnerships. Partners in trading partnerships have the additional power to borrow money. In order to be acting within his implied authority, the individual partner must be acting within the usual scope of a partners powers in the particular business concerned.

Mercantile Credit Co v Garrod(1962)

C A S E

P and G entered into a partnership to let lockup garages and repair cars. P ran the business and G was a sleeping partner. The partnership agreement expressly stated that the firm would not buy and sell cars. P sold a car to a finance company, M. M sued G to recover the 700 which it had paid to P for the car. G denied liability claiming that P when selling the car had been acting outside the agreed limits of the firms business and therefore P had no actual or apparent authority to make the contract. Evidence was given that other garage businesses of the type carried on by P and G did deal in cars. Held: The test of what is the firms business is not what the partners agreed it should be but what it appears to the outside world to be. Under that test P appeared to M to be carrying on business of a kind carried on by such a firm. This contract was within the apparent authority of P and therefore the contract was binding on G.

LIABILITY FOR PARTNERSHIP DEBTS

The firm is liable for contracts made by a partner if he was acting within his actual or apparent authority. The firm is not bound by the apparent authority of a partner if:
the third party knows the partner has no actual authority, or the partner has no actual authority and the third party does not know or believe him to be a partner.

HOLDING OUT
s.14(1) Any person who represents himself as a partner, (whether orally, or in writing or by conduct) or who knowingly allows himself to be represented as a partner, will be liable as a partner to anyone who has given credit to the firm in reliance on the representation.

Martyn v Gray (1863)

C A S E

G went to Cornwall to discuss the possibility of investing in a tin mine belonging to X. Nothing came of the discussions, but while G was in Cornwall he was introduced by X to M as a gentleman down from London, a man of capital. M later gave X credit believing he was in partnership with G.
Held: The introduction amounted to a representation that G was in partnership with X, and so G was liable for the debt incurred subsequent to the introduction. He should have made the true position clear by correcting the impression made.

LIABILITY IN TORT
Where a tort is committed during the ordinary course of the partnerships business, or by a partner acting with the authority of the other partners, the partners are jointly and severally liable to the person who has suffered loss.

Misapplication of money or property

The partnership is liable to make good the loss where a third partys money or property is misapplied:
after being received by a partner within his actual or apparent authority, or while it is in the custody of the firm.

WHICH PARTNERS ARE LIABLE ?

WHICH PARTNERS ARE LIABLE ?....

DISSOLUTION OF PARTNERSHIP

Hudgell, Yeates and Co v Watson (1978)

C A S E

Practising solicitors are required by law to have a practising certificate. One of the partners in a firm of solicitors forgot to renew his certificate which meant that it was illegal for him to practise.
Held: The failure to renew the practising certificate brought the partnership to an end, although a new partnership continued between the other two members.

DISSOLUTION OF PARTNERSHIP

LIMITED LIABILITY PARTNERSHIPS(LLPs)

CHARACTERISTICS OF AN LLP

CHARACTERISTICS OF AN LLP

CHARACTERISTICS OF AN LLP

DIFFERENCE BETWEEN A PARTNERSHIP AND AN LLP