The definition of a Partnership is to be found in s.1(1) of the Partnership Act 1890 as follows:
“Partnership is the relation which subsists between persons carrying on a business in common with a view of profit”.
A registered company is excluded from this definition under s.1(2).
Two or more people therefore must be carrying on a business. Any agreement to run a business in the future does not constitute a partnership, nor does the taking of initial steps to enable a business to be run. ‘Business’ is defined in s.45 as including “every trade, occupation or profession”.
Partnerships do not require to be registered or put in writing. Therefore the existence of a partnership is always a matter of fact. S.2 of the Partnership Act lays down rules which determine the existence of a partnership as follows:
- Joint or common ownership of property does not of itself create a partnership, even where profits from the property are shared (s.2(1));
- The sharing of gross returns does not of itself create a partnership, a person does not therefore become a partner in a business as a result of earning commission on sales;
- The sharing of profits however is prima facie evidence of partnership.
Nature of Partnership
Partnerships are in law very different to companies. The most significant difference is that partners have in general unlimited liability for the debts of the partnership, whereas the liability of shareholders for a company’s debt is limited.
Unlike companies, no registration is required for partnerships and they are not under any duty to publish their accounts.
Significantly in law, a partnership, unlike a company is not a separate legal entity from its partners. However, in relation to litigation, there is some recognised distinction between a partnership and its individual partners.
Number of Partners
Until 2002, there was a maximum limit, albeit with numerous exceptions, of 20 partners for any particular partnership, This rule has now been abolished, such that no limitations apply in any circumstances.
In general, any person (including a minor) is capable of creating a partnership with any other person. Companies may also in certain circumstances form a partnership with other companies or individuals.
Duration of Partnership
The most common type of partnership is one which lasts “at will”, that is, no period of time is specified for the intended duration of the partnership, and the partnership will dissolve on notice by any partner unless there is a prior agreement to the contrary.
If there is a specified time period, e.g. for a fixed term or for a period of time defined by some event, such a partnership cannot usually be dissolved by notice.
The commencement date of a partnership can be difficult to establish and is always a matter of fact, inferred by the actings of the parties. If a partnership agreement exists, this may provide evidence of the commencement, it is not conclusive in itself.
Partnership Name and Publicity of Information
The law relating to partnership names is contained in the Business Names Act 1985.The act permits the free use of certain names and requires approval for others. It also lays out certain criteria for the publicity as to the membership of partnerships.
The partnership name often consists of the names of each of the partners and these are automatically permitted. Automatically permitted additions include:
- The forenames or initials of the partners;
- The addition of an “s” to a surname to indicate that there is more than one partner with that surname;
- A statement that the partnership is being continued in succession under the name of a prior owner.
Where the name contains details in addition to the names of the partners, and the permitted additions above, then disclosure is necessary under s.4 of the Business Names Act and approval may be required.
Where the partnership name is not an automatically permitted one, it is required to state the name of each partner, and an address for service of each of the following documents:
All business letters, all orders for goods or services, all invoices, all receipts, and any written demands for payment of a debt.
This information must also be displayed in a prominent place in the place of business. In the event of there being more than 20 partners, the need for each name to be contained in every document does not apply, but it must state instead that a list is available for inspection at the principal place of business.
Similar to company law, it is an offence to carry on any partnership business under a name which is suggestive of having a connection with government. Section 3 of the Act gives the Secretary of State the power to specify words for which his approval is required.