Business Law and Practice notes - BPP Law School - High Distinction Level notes!
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The traditional partnership: The Partnership Act 1890 contains the basic structure of partnership
law.
The partnerships governed by this act are often known as ‘general partnerships’. The
partners in a partnership of this type have unlimited liability for the debts and obligations of
the partnership
The LP: The Limited Partnership Act 1907 introduced a second type of partnership.
Provided one partner is the general partner and therefore accepts unlimited liability, all of
the other partners (known as the limited partners) can benefit from limited liability.
o The limited partners must not be involved in the day-to-day running of the
partnership business (otherwise they lose their limited liability status).
o For this reason, LPs are often used in fund structures. The limited partners are
passive investors with no active role in managing the partnership business.
The LLP: The Limited Liability Partnerships Act 2000 introduced a third kind of partnership.
LLPs are often described as hybrids as they combine elements of both a partnership and a
company.
They have the flexibility of conventional partnerships in relation to their internal
arrangements but they are treated as single legal entities with limited liability of their own.
LLPs are subject to many provisions of the companies acts (and most particularly the
Companies Act 2006 (‘CA 2006’)).
--
Partnerships-
Intro-
Very easy to establish – no formality is required as it is a ‘relationship between persons carrying on a
business in common with a view of making a profit’ - s1(1) PA 1890
Must be at least 2 persons to form a partnership
Needs no intention to form a partnership; the existence will be on the facts
The PA 1890 does not distinguish between actual and legal persons – so a company could be
a partner
NOT A SEPARATE legal entity separate from the partners themselves
Use of partnerships-
Many will want to avoid forming a partnership
Yet many start as a partnership before they convert into a limited company
Yet there are advantages:
It costs nothing + no formality
Partnership Act 1890-
, There is subsequent case law to supplement the Act
The act is generally a ‘fall back’ provision for where there is no partnership agreement/ where it is
silent on a matter
-
Existence of partnerships-
S2 PA 1890 – has a list of rules for determining the existence of a partnership
It helps to determine if s1(1) has been met
Eg: evidence of profit sharing will be prima facie evidence of a partnership but not necessarily
conclusive evidence - s.2(3) PA 1890
(Northern Sales Ltd v Ministry of national revenue) - Shows that if there is an agreement to share
losses as well as profits – this makes the existence of a partnership more likely
A loan of money from one party to another is not creating a partnership
Being ‘held out’ as being a partner will make the existence of a partnership more likely
(Walker v Hirsch)-
A clerk lent money to the partnershitp was paid a fixed salary and took 1/8th of the profits +
losses
But never held out as a partner – so no partnership found
-
Relationships of partners to another-
The partnership agreement/ deed-
Most will have some form of express agreement
Normally with provisions for profits and capital on dissolution
Usually provides the joining of new partners, retirement and termination of partnership
PA 1890 has default code in absence of any contrary agreement
Parties rights and obligations can be varied at any time with unanimous consent – s19, which can be
expressly conferred from a course of dealings
-
Fall back provisions on internal affairs-
PA 1890 contains provisions dealing with the internal regulation of the partnership. These are
subject to any agreement, express or implied, between the partners.
The fall back provisions include the following:
S.24(1) Profits: Partners are entitled to share equally in the profits of the business. This is
the case even where the parties have contributed to the capital unequally. There should
therefore be an express provision in the agreement setting out a profit sharing ratio (or
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