Overview
Company and Commercial law concerns businesses of all descriptions and sizes.
At one end of the scale there is the large public company conducting business in the UK and abroad. It is governed by its memorandum and articles of association, which must be acceptable to the company's shareholders and also to the regulatory authorities such as the London Stock Exchange, and major creditors such as bankers. The memorandum and articles of association must also, be regarded as 'workable' by the company's own directors and officers i.e., the company must be able to carry out the activities which the directors consider are beneficial to the company and the company must be able to perform those activities in the most effective way.
At the other end of the scale there is a partnership of as few as two individuals. A fairly simple form of contract may govern the relationship between the partners and there may be little need to take account of the interests or requirements of third parties.
Whatever form of organisation is chosen, the basic requirement is that the internal and external relationships must be clearly defined. The external relationship is the relationship that exists between the organisation and outside parties dealing with it. It is important to focus on the objects and powers of the organisation to ensure from the beginning that it has the capacity to contract with third parties in pursuance of its objectives. For example, borrowing powers and any relevant limits on those powers must be clearly defined. Companies are required to make publicly available the documents that establish these objects and powers and outside parties are therefore able to check their adequacy. A search of a company's public file at Companies House will, for example, disclose whether its memorandum of association encompasses the activity in question.
By contrast, partnerships are not required to make publicly available the contractual documents making up their constitutions but they may need to prove to outside parties that the correct procedures have been undertaken to commit the partnership to the obligation that has purportedly been undertaken on its behalf. In practice, third parties tend to rely on the ostensible authority of those committing the partnership but some outside parties, e.g. banks or landlords, may require the production of the relevant documents.
Forming A Partnership
A partnership is the relationship that exists "between persons carrying on a business in common with a view of profit". Business means "every trade, occupation or profession". Under English law a partnership is not a separate legal entity (unlike a company) and all of the partners have a direct legal liability for all obligations created in the name of the partnership.
As a general rule, a partner contributes a proportionate part of the capital together with his or her labour and services. A partner who only provides capital is called "a sleeping partner".
The wording of partnership agreements are not all the same since a lot will depend on the commercial terms that have been agreed between the partners in each case. The information that follows should, therefore, be regarded more as a non-exhaustive list of matters to be considered when forming a partnership agreement.
Two or more people wanting to carry on in business together generally have the choice between forming a partnership or carrying on that business through the means of a limited company. Certain professions are prohibited from acting through a limited company, notably solicitors (although there have been recent changes to the law in that regard) and doctors, but most others are free to choose.