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Chapter 8
Partnerships
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What you will learn?

 The formation of a partnership

 The authority of partners in relation to

partnership activity

 The liability of various partners for

partnership debts

 The termination of a partnership and

partners’ subsequent rights and liabilities
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1. Definition

Partnerships is the relation which

subsists between persons carrying on a
Definition
business in common with a view of
profit.

• Firm: to denote a partnership

• Company: may form part of the
Terminology
name of a partnership, i.e. ‘Smith
and Company’

• Unlimited liability partners

Liability of • Limited liability partners: may not
the partners taking part in the management of
the business
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2. Unlimited liability partnership

 Informal arrangement
Formation
 More complex than simple agreement

Partnership
A written agreement is not legally required
agreement
 Passing of time, if the partnership was
entered into for a fixed term
 Termination of the venture, if entered into
for a single venture
 The death or bankruptcy of a partner
Events of
(partnership agreement may vary this)
termination
 Subsequent illegality
 Notice given by a partner if it is a
partnership of indefinite duration
 Order of the court granted to a partner
 Agreement between the partners
 Paying off external debts
 Repaying to the partners any loans or
Partnership’s advances
liability upon  Repaying the partners' capital contribution
termination  Anything left over is then repaid to the
partners in the profit-sharing ratio.
Exceptions: Death or bankruptcy of a partner
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2. Unlimited liability partnership

- Actual authority/ Subject to the perception
of the third party
Authority of
- Partners are also jointly liable for crimes
partners and torts committed by one of their
number in the course of business.
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2. Unlimited liability partnership

 Joint liability for partnership debts

Liability of  Liability of existing partners:
partners  Liability of new partners
 Liability of retiring partners

Supervision No formal statutory supervision or

& regulation regulation of partnerships

Partnerships can grant a mortgage or fixed

Property charge over property, but cannot grant
floating charges.
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3. Limited liability partnership

A limited liability partnership (LLP) is a corporate
body which has separate legal personality from
Key term
its members and therefore some of the
advantages and disadvantages of a company.

 Through registration by submission of an

incorporation document and a statement of
Formation
compliance to the Registrar of Companies.
 May have an unlimited number of partners

 The rights and duties of the partners will

usually be set out in a partnership
agreement, or in regulations under the Act in
Internal
the absence of such partnership agreement.
regulation  LLPs must have two designated members,
who take responsibility for the publicity
requirements of the LLP.
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3. Limited liability partnership

The LLP will not be bound by the acts of the

member where:
External  They have no authority and the third
relationships party is aware of that fact
 They have ceased to be a member, and
the third party is aware of that fact

 Follow provisions similar to company

winding-up provision
Dissolution  Not dissolve when a member leaves in
the same way that a traditional
partnership does.
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4. Limited partnership (rarely)

 A limited partnership may be formed in
which at least one partner (the general
partner) must have full, unlimited liability.
Formation
 The other partners have limited liability for
the debts of the partnership beyond the
extent of the capital they have contributed.

 Limited partners may not withdraw their

capital
 Limited partners may not take part in the
management of the partnership
Applicable
 Limited partners cannot bind the partnership
rules in a contract with a third party without losing
the benefit of limited liability
 The partnership must be registered with
Companies House