Chapter 4The Law Relating to Associations 2: Partnerships

A. PartnershipsDefinition

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 PartnershipsDefinition

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

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A.PARTNERSHIPSDefinition: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?

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(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.

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WHAT ARE THE DIFFERENCES BETWEEN A REGISTERED COMPANY AND A PARTNERSHIPTHE 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.

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D)AGENCYTHE 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.

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(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 FIRM’S ASSETS.

(I)FORMALITIES AND PUBLIC INSPECTION

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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 WOUND-UP 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.

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(K)THE ARTICLES OF PARTNERSHIPAS 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 NAMEA 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

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WHAT ARE THE DUTIES OF PARTNERSHIPTHE 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 28THIS 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.

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(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 PARTNERSHIPSUBJECT 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.

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(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.

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PARTNERS AS AGENTSIN 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.

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RELATIONSHIP OF PARTNERS TO THIRD PARTIESAS 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.)IN HIGGINS V. BEAUCHAMP (1914), BEAUCHAMP AND X CARRIED ON A PARTNERSHIP BUSINESS AS OWNERS AND MANAGERS OF CINEMAS. THE

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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 ORDERA 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).

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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 FIRM GENUINELY CANNOT CONTINUE IN PARTNERSHIP WITH THE PARTNER CONCERNED,

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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 GRANTED“WHEN 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.

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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 DEBTSPAY 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 CONSIDERATION TO SUPPORT SUCH AN AGREEMENT. THE MERE AGREEMENT OF

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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 DISSOLUTIONTHE 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.

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B.LIMITED LIABILITY PARTNERSHIPSDEFINITIONORDINARY 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 FIRM’S 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 ACT’S REGULATIONS (S.1 OF THE 2000 ACT).INCORPORATION AND AGREEMENTSECTION 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

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OF 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,

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PARTICULARLY APPROPRIATE FOR PROFESSIONAL PRACTICES WISHING TO LIMIT MEMBERS' LIABILITY.

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 MEMBERSTHE 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

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BY DEFAULT REGULATIONS MADE UNDER SECTION 15 (C). THE FOLLOWING PROVISIONS HAVE BEEN LAID DOWN IN REGULATION 7: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 AGENTSEACH 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

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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 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 LLP’S 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 LLP’S 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 MEMBERSHIPA 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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