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Published: Fri, 02 Feb 2018

Partner Conviction of Offence

Imran has retired six months ago but the suppliers believe that he is still a partner; we were not told if he had notified or advertise his retirement in the London Gazette. Where a person deals with a firm after a change in its constitution he is entitled to treat all apparent members of the old firm as still being members of the firm until he has placed notice of the change s36 (1). The law requires a+- retiring partner to notify his retirement. For existing customers, actual notice of the retirement must be given either by a letter from the firm or by placing an advertisement in the London Gazette. The advertisement in the London Gazette serves as a general notice to customers who have not previously dealt with the firm but knew about the firm’s existence and the partners involved. Since Imran has not given any notice of his retirement the two creditors treat him as still being a member of “Art Partnership”. His name appears on the documents in connection with both agreements and under s14 everyone who by words, spoken or written, or by conduct, represents himself, or knowingly allows himself to be represented as a partner in a particular firm, is liable as a partner to anyone who has because of that given credit to the firm or advanced money to it. Although Imran is not a partner any more he is still liable for debts made by the firm. If he was aware of the fact that his name appeared on documents of the firm then he is a partner by holding out. But if he had not known about it then he must prove it since for a person to become a partner by holding out must know that he is being held out as a partner and also it must be shown that he consents. In Tower Cabinet Co Ltd v Ingram [1] after the dissolution of a firm called “Merry’s”, one of the two partners, Christmas, carried on as a sole trader under the firm’s name but with new note papers without Ingram’s name on. When the plaintiffs received an order on old note paper with Ingram’s name included they sought to enforce a judgment against Ingram. It was held that he was not liable as a partner by holding out since he had not represented himself as being a partner. Also under s17 a person by retiring does not cease to be liable for the debts and obligations of the firm incurred before his retirement. The date of any contract determines responsibility and if the person was a partner when the contract was agreed then that person is responsible even if the goods under the contract are delivered after the person has left the firm. Imran therefore might or not be liable for the debts with the suppliers depending on his notification or advertisement.

Where a partner is convicted of an offence as Mike’s, this would usually require expulsion, since this will affect the firm’s name and bring it to disrepute. Although they don’t have an agreement in force, this might end up in dissolution, to enable the remaining members form a new firm. This is one scenario (and very rare) where no partnership agreement may be advantageous as if there is no agreement one partner can call for the dissolution of the partnership.  Do remember that the partners remain jointly and severally liable for the acts of partners before the date of dissolution. Where there is a partnership agreement it may be possible to expel the partner concerned if there is a clause which allows expulsion for bringing the firm into disrepute, as being charged with an offence may be sufficient for that.

Partners are essentially agents for one another thus a fiduciary, making each partner liable for the acts of the other undertaken in the course of the business of the partnership [2] . Therefore, when transacting business on behalf of the partnership each partner can only act within their legal authority and must carry out their duties with reasonable care. Any resulting contract created or entered into by one partner becomes binding on all partners even if authorisation is lacking and any failure to carry out contractual duties will result in an action for breach against all the partners. This may imply that other partners are as much a party to the contract, be it oral or written, made with suppliers of fruits as Carl and therefore, entitled to be aware of it and benefit from it. Carl is in violation of possibly two statutory duties in his dealings with the suppliers. The first being s.28 as Carl has not provided full information and accurate accounts of all matters affecting the partnership with regards to the contract. The second being unarguably s29(1) whereby Carl has not disclosed all the benefits he has received as a result of the contract. In Bristol and West Building Society v Mothew [3] a fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstance which give rise to a relationship of trust and confidence. In Bentley v Craven [4] (one of the first cases permitting a fiduciary duty to arise from a partnership) a partner was held to be in breach of s29(1) after selling his own goods to the partnership without disclosing that they were his and held liable to account to his partners for the whole profit he had made. So Carl will have to pay back the proceeds to the firm.

The Partnership Act 1890, section 1, defines a partnership as “the relation which subsists between persons carrying on a business in common with a view to profit”.

When a partnership is created, the parties often draw up a deed of partnership which includes the provision of capital, management, and the sharing of profits. By the Companies Act 1985, section 716; an unlimited partnership must not normally have more than 20 members. This type of business is quite suitable for friends and relatives, as a good relationship between the members is required. Unlike sole trader the partners share the business which mean share the control, decision making and profits/loses. All partners are jointly and severally liable for the firm’s debts. “Partners owe statutory duties of good faith to each other. Section 28 imposes a statutory duty to account: “partners are bound to render true accounts and full information of all things affecting the partnership to any partner or his representative” (Law v Law (1905) 1 Ch 140, CA). Section 29 deals with secret or unauthorised profits: “Every partner must account to the firm for any benefit derived by him without the consent of the other partners from any transaction concerning the partnership property, name or business connection”. (Pathirana v Pathirana (1967) AC 233)”

(Marsh and Soulsby; Business Law; 8th edition; 2002; p58)

Disadvantages Firstly, the financial benefit derived from running the business will have to be divided between the partners equally or according to their agreement. On the other hand all losses will be split up between partners in proportion to the percentage of capital invested. Secondly, the firm is liable for wrongs committed by the individual partner. By Section 10, where one partner commits an act which is wrong in itself, as opposed to being outside his authority, the firm will be civilly liable for any harm caused, and criminally for any penalty incurred if either the act was done with the actual authority of his fellow partners or the act was within his usual authority, in the ordinary course of the firm’s business. (Hamlyn v Houston & Co. (1903) 1 KB 81) Thirdly, Section 9 states the obvious and rules that every partner is liable, jointly with his co-partners, for all debts and obligations of his firm which are incurred while he is a partner.

And lastly, the unlimited liability which states that each partner is responsible for the business debts. However, the new Act was introduced which helped to deal with the problems of unlimited liability.

The Limited Liability Partnership Act 2000

“Since April 2001 it has been possible to create a new business organisation called a limited liability partnership (LLP). The difference between the ‘normal’ partnership and LLP is as follows.

There is no limit on the number of partners

An LLP is a corporate body with separate legal personality, like a company. Contracts are made with LLP, and the LLP can sue or be sued. The property of the body belongs to the LLP, not to the members, and the LLP will continue in existence notwithstanding the death or retirement of a partner, or any other change in membership.

Above all, the members have limited liability. If the firm cannot pay all its debts, the individual partners normally have no further liability from their own resources.

Also it must be publicly formed and supervised by the Registrar of Companies. A registration document must be sent to the Registrar of Companies. After the LLP is incorporated, the Registrar continues to exercise some controls.”

(Marsh and Soulsby; Business Law; 8th edition; 2002)

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