Company And Commercial Matters

Select an area... Overview Forming A Partnership

Forming A Partnership (Cont...)

It is important to set out exactly what acts a partner can or cannot do on behalf of the firm. It is also important to inform the public if one partner leaves the partnership. If, for instance, the agreement of all partners is required before entering into certain contracts this should be stated in the partnership agreement. The partnership will be bound by any contract made by someone holding himself out (and held out by the partnership) as a partner to a third party even if he had no actual authority to enter such a contract. It is for this reason that the public should be notified by an advertisement in the London Gazette when a partner leaves the partnership so that the partnership does not continue to be liable for contracts entered into by the leaving partner if he continues to tell people that he is still a partner.

Duty of Good Faith

Partners must behave towards each other with utmost good faith and unless otherwise agreed, the following provisions are implied.

Each partner may:

• Take part in the management of the partnership business,
• Share equally in the capital and profits of the business and
• Contribute towards the losses whether of capital or otherwise sustained by the business.

To avoid any misunderstanding, the agreement should always deal expressly with the shares of the partners in the capital and in the trading profits and losses. A partner who contributes capital to the partnership over and above his capital share, is entitled to interest at the rate of 5 per cent per annum from the date of the payment unless otherwise agreed (Partnership Act 1890, s 24). A partner is not entitled to interest on his capital before the profits are ascertained.

Partnership books are generally kept at the place of business of the partnership and access should be fully available to the partners. Unless otherwise provided in the deed, a partnership may be terminated on one of the partners giving notice of its termination to the others. A partner may not be expelled from the partnership by a majority of the other partners unless it is expressly provided for in the deed. Every partnership is dissolved by the death or bankruptcy of any one partner unless the contrary is stated in the deed (Partnership Act 1890, s 33).

Section 716 of the Companies Act 1985 prohibits the formation of partnerships consisting of more than 20 persons unless it is registered as a company or formed in pursuance of some other Act of Parliament. This restriction does not apply, for example, to solicitors, accountants or members of stock exchanges.

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