There are no special rules on who may (or may not) be a partner in a partnership. A minor (a person under 18 [note 1]) may be a member of a partnership but will not normally be liable for the debts incurred before the age of 18 and may repudiate the agreement when he/she reaches the age of 18 [note 2].
There can, of course, be no barrier to a person being a partner of the grounds of race, gender, religion or sexuality [note 3].
An undischarged bankrupt may be a partner in a partnership, subject to the usual trading restrictions [note 4] (see Chapter 25, Part 1) (though see paragraph 53.88 regarding the effect on a partnership of a bankruptcy order against an existing partner), as may a person subject to a company director disqualification order (on the basis that a partnership is not a company within the definition of the relevant legislation [note 5]). The legislative logic of this is that a partnership does not afford limited liability – the removal of this privilege being one of the main reasons why a person would be disqualified from managing a company.
Subject to any contrary agreement between the partners, each general partner has rights to:
A partner’s share in the partnership is his/her right to a share in the profits (although it will also inform their liability for the partnership losses). Contrary to what might be thought, the value of a partner’s share does not necessarily relate to his/her contributions (capital, labour, etc.) to the partnership, and the value of the share will instead depend on what is agreed between the partners or, in the absence of any such agreement, will be an equal share [note 8] [note 9].
Such an agreement relating to the proportion of shares may be a written agreement (forming, perhaps, part of the partnership agreement – see Part 3) or may be inferred from the actions of the partners or from the books [note 10].
The official receiver, as trustee of a bankruptcy estate, would only be involved in valuing a partner’s share in following the dissolution of the partnership as a result of the making of a bankruptcy order against a partner (see paragraph 53.144).
It is the responsibility of the remaining, solvent, partner(s) to account to the official receiver for the bankrupt partner’s share though it may be the case that the official receiver will need to become involved in this process.
See paragraph 53.146 for advice on this process.
A partner’s share (in essence, the right to share in profits) in a partnership may be transferred (subject to the terms of the partnership agreement) but the assignee is not entitled to be involved in the management of the continuing partnership [note 11]. As well as being entitled to a share of the profits, the assignee would be liable to contribute towards losses according to the vendor’s share in the partnership (subject to any indemnity [note 12]). Additionally, he/she would be entitled to a share of the proceeds following dissolution [note 13].
Where the official receiver is trustee of the estate of the vendor, the share would have no value to the estate, but were the official receiver trustee of the assignee’s estate he/she would have the benefit (any losses being a debt of the assignees estate).
Partners are not, subject to any contrary entitlement in agreement with other partners, entitled to remuneration for managing the partnership affairs [note 14]. Instead, they are entitled to a share of the partnership profits (see paragraph 53.66). The exception would be a salaried partner (see paragraph 53.70) who is not entitled to a share of the profits but is entitled to a fixed remuneration irrespective of the profits.
A salaried partner is one that receives a fixed salary, but may have limited rights to participate in the management of the partnership and may have no obligation to contribute capital and/or share losses. A salaried partner is one that receives a salary whether or not the partnership makes a profit, any other type of arrangement (such as receiving a salary as a share of the profits) is likely to mean that the partner has full rights to participate in the management of the partnership.
Every partner is the principle and agent of his/her other partners for the purpose of the business of the partnership [note 15]. In simple terms, what this means is that, in carrying out partnership business (negotiating a new sales contract, for example), the partner is acting for him/herself and for the other partners.
This means that the actions of one partner will bind each member and the partnership as if he/she had carried out the action. This potential liability is limited to the partner carrying out the act if that partner had no authority to carry out the act (under the terms of the partnership agreement – see paragraph 53.60 - for example) and the person with whom he/she is dealing knows that he/she has no authority, or if the partner was clearly not acting for the partnership [note 16].
Such an agency can be created in the borrowing of money [note 17] (i.e, the money borrowed for the partnership by one partner is a debt of all partners).
The partners have a general duty of good faith to each other in respect of their actions [note 18] and, also, a statutory duty in respect of the provision of full and accurate information to each other [note 19].
There is a duty for a partner to account to his/her fellow partners for any profit made in connection with the business of the partnership or with the use of partnership property [note 20]. If a partner separately carries on a business in the same nature of the partnership or competing with the partnership then he/she is required to account for and pay over to the partnership all profits so derived [note 21].
The relationship between the partners is primarily contractual [note 23].
A person may become a partner by agreeing to become one, even if he/she does not sign a partnership agreement [note 24], unless he/she agreed to become a partner only on the signing of the agreement [note 25].
Unlike in a company (where contributories and officers are sometimes different individuals), the partners (and this includes past partners who are liable for any debts of the partnership of the period involved) are considered to be both contributories and officers. See paragraph 53.143 for advice on having a partner contribute to the debts of an insolvent partnership.
A partner’s liability to contribute in the event that there is a deficiency in the partnership position is, of course, unlimited – though may be limited to debts incurred during the period of his/her membership of the partnership in the case of ex-partners [note 26].
Where a partner retires and a third party deals with the partnership (as in does business, for example) after the change of partners, that third party is entitled to treat all apparent ‘old’ members of the partnership as still being partners unless/until he is notified of the change [note 27], unless he/she knowingly holds him/herself out as a partner post-retirement [note 28]. The notice may be actual notice, or by placing a notice in the London Gazette [note 29].