The Partnership Act 1890: Dissolution in the Absence of Collaboration

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The partnership act 1890 governs the relationship of the persons and the outside world. And in respect of dissolution; if there is no collaboration arrangement, the partnership act set out the rights and responsibilities of the partners. Such rights and tasks (by act or arrangement) may be varies by the permission of all partners. (S 19). 'The relation which survives between persons continuing a service in common with a view to revenue.' Under S24 (5) 'in typical' indicates every partner has a say in the firm.

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The members are only responsible for their membership unless the partnership arrangement says otherwise.

Saywell V Rope [1979] the partners are not in the partnership as no evidence recommended. 'Person' includes a corporation as well as individuals. Business can enter partnership. 'With a view to benefit' means specific organisations are omitted. E. g. club or society has no view to revenue. Pitreavie Golf Club V Penman [1934] financial institution sue under partnership, held, Club's motivation was to allow member to play not share in earnings.

'Organisation' included every trade, profession and profession. Keith Spicer Ltd V Mansell [1970] Plaintiff take legal action against the partnership for debt owned, held, there were no collaboration so claim stopped working.

Since def carrying on service with no view to earnings. It is very important to figure out whether a partnership exists. For tax reason. When acting in the course of organisation, the business will bind the other partners to outsiders. S. 24 ideal to share in revenue, management, duties and faith considering that the plan is uberrimae fidei.

S. 35 dissolution. If not acting in great faith then the court can dissolve the partnership. S. 28 responsibility to disclose, bond to render true account of all things impacting the collaboration to any partners or their legal representatives.

Law V Law [1905] – After the sales agreement there is a partnership asset that was not hidden from the account. But W had lost the right to avoid the contract as he takes the money while knowing disclosure had not made. Held: the agreement to sell shares is avoidable. The contract may be verbally, written or in deed. Basic: A partnership is not a company since it is not incorporated; therefore it has no legal personality separate from its members. Partnership may be implied by conduct where a ‘person holds himself out’ as being a partner.

Then he will be liable for the debt incurred S. 4 Under the Rules of the Supreme Court 1965, the partners may be sued in the firm’s name. In KHAN & OTHERS V MIAH & OTHERS [2000] HL confirmed that partnership begins at the point of agreement, not the point when the trading starts. S. 5 each partner is an agent for the firm, has the power to bind the firm by his conduct. The partner is agent as far as he’s acting on the firm’s ordinary activities.

Mercantile Credit Co V Garrod [1962] – G was sleeping partner and partnership agreement prohibited the sale of cars which P did. Held: G was bound by contract by virtue of S. making the contract was the doing of an ‘act for carrying on in the usual way business kind carried on by the firm. ’ S 29 (1) every partner must account to the firm for any benefit made by him from any transaction concerning the partnership, it property, name or business connection. Bentley V Craven [1853] C brought products at low price but sell them to the firm at wholesale rate. Held: C can’t retain the profit from these transaction and profit need to hand to the firms. C had used partnership asset, his position to make profit. No person may be introducing as a partner without the consent of all partners.

Consent is implied by the other partner when they sign the article. Any different concerning the running of the business, it must be resolved by a majority vote of the partners. If a fundamental change is proposed, requires consent of all partners. S. 9 every partner is liable jointly with the other partner for all debts and obligation of the firm. The civil liability Act 1978 provided that judgement recovered against any person liable jointly with another, shall not be an action brought against the other. Business name. The firm’s name can’t be used to fraudulently imply that the business is identical with another business.

A person’s business suffers in the same name/similar name may bring a ‘passing off’ action and obtain an injunction stopping the defendant. ANNABEL’S (BERKELEY SQUARE) Ltd . VG. SCHOEK[1972] S. 30 If any partner without the consent of the others, carries on business of the same nature as and competing with that of the firm, he must account for and pay over all profits made in that business. In the absence of any agreement to the contrary, a partner can carrying a non-competing business which does not involve the use of the firm’s property. Croft V Day [1843] Mr Day uses the same trade name as the other in the same street.

Held: the injunction was granted preventing the new firm from trading under the name Day and Martin, the intention of the new firm was to deceive the public. Under S. 34 it is a c riminal offence for a partnership to use the word ‘limited or ‘ltd’ in its name. Partnership agreement terms: Name of partners; Date on the start and end of the partnership; How profit and loss being shared; How much may each partner draw monthly; At which bank the partner maintain its account; Principal asset; Submission of disputes to arbitration; The partnership is based on agreement and they are free to alter them. S. 9 say the decision may be made unanimously; a partnership can’t be formed for an illegal purpose.

Types of partnership: 1) General partner takes active role in the daily management and has share in the loss and profit. 2) Sleeping partner contributes capital, take share in profit and liable for debt. But he does not take part in daily management. 3) A partner by holding out is not a true partner in the firm. He’s liable for financial obligation of the firm. MARTYN V GRAY [1863] Under S. 14 a person can become liable for debt if he by word or conduct represent or other to represent that he’s a partner. E. g. his name on the firm’ letter. ) Salaried partner is an employee becomes ‘holding out’, he received salary and bonus depends on the profit. The 1890 Act does not deal with them. 4) LLP is a member under the LLP Act 2000. Change of partners. The death of the partner may dissolve the partnership, but the agreement should allow the partnership continue between the other partners. On the death of the partner, the estate is not liable for debts incurred after his death, even if the creditor was unaware of his death. S 17 (1) New partners are not liable for debts before they joint the partnership. The right to sue a new partner may be acquired by novation.

Where an agreement between the creditor; the new agreement and the old firm is made, and the original contract is therefore discharged, and the new firm is accepting the liability for the debt. Byrne V Reid [1902] the claimant can introduce his son as partner when they are 21, held, other partner could not refuse because this is layout in the partnership agreement. The retirement of a partner: S. 17(2) He may be discharged from any existing liability by agreement (novation) between him, the firm and the creditors. Creditors are not force to accept novation and may still regard the retiring partner as liable for debt.

The retiring partner can get compensation from the other partner. Under S. 36, the retiring partner will be liable for debt if: 1)To person dealt before his retirement unless given written notice that he’s no longer a partner or 2)To person who had no previous dealing with the firm before but know the composition before retirement. Unless the retirement person has given notice or had advertised in the London Gazette. Such notice is effective without consent. Liability for wrongs: 1)S 10 provides that any wrongful act or omission of any partner acting in the course of the business or with authority of co-partners.

Any loss or injury is caused to person which is not a partner. The firm is liable to the same extent as the partner committing the wrong. This liability is jointly and several. 2) In HAMLYN V HOUSTON & Co [1905] a firm was liable to compensate a claimant where one of the partners had bribed a clerk employed by the claimant in order to obtain information about a rival’s business. 3) The firm will be vicariously liable for the torts committed by its employees in the course of their employment. 4) Lloyd V Grace, Smith & Co [1912].

Advantages of partnership: Uphold of capital, being responsible, share expertise, share resources, share profit and flexibility. Disadvantages of partnership: Conflict, jointly and severally liability, sharing debt/loss. Differences: 1) A company is a type of corporation, registered under company legislation. Company act 2006. The members of the company may have limited liability. The company’s debt belongs to the company not the shareholders, even if the company is insolvent. 2) A partnership is ‘the relationship which subsists between persons carrying a business with a view to profit. ’ S 1 Partnership act 1890.

It’s an unincorporated association, having no separate legal personality from the partners. It may have firm’s name but not corporate status. Partners are responsible for the acts of the firm. Partners have unlimited liability and responsible for partnership’s debt. 3) LLP is registered at the companies’ house and received a certificate of incorporation. LLP is corporate bodies having separate personality from their members. LLP is personally liable to the third party for wrongful acts and might be liable in the insolvency. They are tax as partnership, flexible, trading disclose, accounting and filing similar to the company.

They can also lend and raise floating charge. Perpetual succession 1) A company has perpetual succession; it is not affected by the death of the shareholders or change ownership of its shares. It continues to exist until it wound up by court/its members. 2) A partnership may be terminated on the death, retirement, bankruptcy or insanity of a partner. 3) LLP is incorporated, so not affected by the death etc. of a partner. His share may be inherited but the beneficiary will not be able to take part in management, only share in profit. A company has separate legal personality from its members.

Salomon V Salomon & Co [1897], Lee V Lee’s air farm Ltd [1961], Macaura V Northern Insurance [1925], Cox V Coulsons [1916] – An actor shoot an audience in accident and claimant sue for damage in the partnership of the theatre (def) and theatrical company. Held: def is not in partnership with the actors company so not liable, neither of them are agent. Corporate veil can be lifted where there’s evidence of fraud/illegality. Gilford Motor Co V Horne [1933], Daimler Co Ltd V Continental Tyre Co [1916] (War time), Chandler V Cape Plc. Civil law-compensation; Criminal law –retribution/punishment.

Lift corporate veil to target parent company; but difficult, usually subsidiary. Ownership; Separate ownership and management in a company; Small company has ownership and management in the hands of CEO; in a partnership there’s unity of ownership and control. All partners have right to management. Accounts; Company accounts have to be laid before the general meeting, published and audited. They are open to public inspection; Partnership accounts are not subject to public inspection and no need audited; LLP account need auditor’s report and have be sent annually to company’s house and to each member.

Tax liability; Corporation tax paid on company’s profit, income tax by shareholders on dividend; Income tax is paid by partners as self-employed; LLP are tax as partnership. Shares. 1) Shares in listed companies re freely transferable. Private companies may impose restriction on transferring oh shares. Company can issue shares of different class with right attached to the shares. 2) A partners share is not freely transferable. New partner can be introduced with consent of all partners. In the absence of agreement, all partners have equal rights regarding the firm’s affairs and shares in capital, profit and losses.

3) a member of LLP may leave by agreement or by given notice. (S. 43 of the 2000 act) The firm is not dissolving on the departure of the member so no shares in the LLP’s assets. Unless agreement provides otherwise.

Formalities: 1) To form a company requires registration to be complied with payment of fees. During lifetime of the company there are administrative formalities to be complied. Certain information (change of article/special resolution) need to submit to registrar. Information about a company’s affairs is readily available at company’s house or company’s registered office. This also applies to LLP. 2) The formation of partnership has no legal requirement to be complied. But the business names act 1985 applies the partnership being based on agreement between the partners. No requirement for partnership except those affecting the business. E. g. registration for VAT, return of profit from HMRC. The public has no right to access material concerning partnership affairs. 3) LLP required submitting an annual return and accounts to companies’ house and keeping accounts in accordance with company legislation and daily records disclosing the financial position of the firm.

The veil of incorporation, it was established in Salomon that a registered company is a legal person separate from its members. This principle may be referred to as ‘the veil of incorporation’. In general the law will not go behind the separate personality of the company to its members. Restated by Lightman J in Acatos and Hutcheson Plc V Watson [1995]. Principle of separate identity should be upheld unless there was a specific statutory provision or some other contractual term or common law principle to the contrary.

Therefore, when the company is incorporated the veil of incorporation comes down, giving the company a separate legal personality from its members. Fraudulent trading, S. 213 of the insolvency act 1986:

1) If it appears that ‘any business of the company has been carried on with intent to defraud creditors of the company or of any other person, or for any fraudulent. 2) Purpose ‘it may order that ‘any persons who were knowingly parties to the carrying on of the business in the manner above mentioned are to be liable to make contributions to the company’s assets as the court thinks proper. 3) S. 993 CA 2006 Criminal offences of fraudulent trading.

3) High standard of proof. S213 of the IA 1986 provides that if in the winding up of a company it appears that the business has been carried on with the intent to defraud creditors or for any fraudulent purpose, the court, on the application of the liquidator, may declare that any persons who were knowingly parties to the fraudulent trading shall make such contributions to the company's assets as the court thinks fit. ) S214 of the IA 1986 provides that where the liquidator of a company can show that D prior to liquidation, knew or ought to have known that there was no reasonable prospect that the company could avoid insolvent liquidation, and did not take steps to minimise the loss to creditors, the court may require D to make personal contribution to the company's assets. Does not have to be dishonest, unreasonable behaviour or negligence. Reproduce Marketing Consortium Ltd [1989] Company become insolvent Ds directors were not dishonest but failed to take action.

Held: the directors know that liquidation will occur, but fail to minimise loss during the disposal of assets. 5) S216 of the IA 1986 provides a criminal offence is committed. Directors or shadow directors during the 12 months prior to the company’s insolvent liquidation who concerns himself during the next 5 yrs in the formation or management of the business with a name similar to the earlier company. S 217 imposes personal liability on such a person for the debts and liabilities of the second company. Ricketts V AD Valorem Factors [2003]. ) Under S15 of the Company directors disqualification Act 1986, a person who has been disqualified continue acting in the management of a company will b e liable for the debts of the company contracted during that period. He can be guilty of a criminal offence under S13.

Lifting the veil 1) Disqualified director. S. 15 of the company directors disqualification Act 1986, where disqualified from being a directors in contravention of disqualification. D liable for all debts of the company which were incurred when he was so acting. The same applies to the person who knowingly acts on the instructions of a disqualified person. ) S. 122(1) of the Insolvency Act 1986 petition to wind up a company on the grounds above. That it would be just and equitable to do so. For instance the court might look into why the company was formed. 3) Company name: S349 companies act 1985. E. g. directors or secretary issues or signs on behalf of the company, a bill of exchange or order for goods under the company’s name incorrectly stated; they are liable if the company defaults. 4) Penrose V Martyr [1858]-a company’s secretary accepts a ‘bill’ drawn on the company’s name on which the name was incorrectly written.

The company defaulted. Held: The secretary was personally liable. 5) Trading certificate. Where no certificate has been obtained to enable a public company to commence trading, the directors commit a criminal offence and are personally liable to indemnify the other party for loss if the company defaults. However, failure to obtain the certificate does not affect the validity of any contract. Judgement. It is difficult to be precise about the circumstances when a judge will be prepared to lift the veil of incorporation.

In Wolfson V Strathclyde Regional Council [1978] the COA laid down the principal that it is only permissible for a court to lift the veil where ‘special circumstances exist indicating that the company is a mere facade concealing the true facts. Gilford Motor Company Ltd V Horne [1933], Jones V Lipman [1962], DHN Ltd V Strathclyde RC [1978], Adams V Cape Industries Plc and Another [1991]. Judges lift veil to reveal fraud, sharp practice, oppression and illegality. Judge have lifted the veil in the: 1) Alien enemies. During war time, where a company is control by enemy aliens contract will be unenforceable by the company.

A company registered in the UK may be an alien enemy if those in control to its affairs are alien enemies. Daimler Co. Ltd V Continental tyre and Rubber Co Ltd [1916]. 2) Where company is formed to enable persons to evade existing liability there’s abuse of company law. Gilford Motor Co Ltd Horne [1933] an ex employee was personally bound by a valid restraint of trade from approaching his former firm’s customers. He set up new company to solicit customers of his previous employer.

Held: The Company was a mere sham to cloak the wrong doings of the director and the court grant the injunction against the new company as well as against him. ) Lord Denning as prepared to life the veil in Wallerstiner V Moir [1974] there was fraud surrounding the making of a loan to director. The company of which he was a director made a loan to another company which was his ‘puppet’, so the loan should be treated as made to him. 4) Interest of justice. Creasey V Breachwood Motors Ltd [1993] an employee successfully claimed unfair dismissal against a company to whom all the assets of the original company, owned by the same individuals, had been transferred.

However, the corporate veil can only be pierced if there is some evidence of impropriety or fraud. 5) Conflict viewpoint. In Creasey V Breachwood Motors Ltd [1994] the judge said ‘the power of the court to lift the corporate veil exists. The authorities provide little guidance as to the circumstances in which this power is to be exercised. ’ However, in Williams V Natural Life Health Foods Ltd [1998] the HOL took the view that the corporate veil was sacrosanct and should only be lifted in the most exceptional circumstances. ) In Trustor AB V Smallbon [2001] the def, a managing director had transferred substantial sums to another company. The Chancery Division was prepared to pierce the veil and recognise the receipt by that company as that of the individual in control, because it was used as a device or facade to conceal the true fact. However, in the absence of impropriety or fraud the courts will not pierce the veil. 7) Corporate manslaughter. Gross negligence manslaughter- is the veil lifted here? Is the veil lifted in case where corporate manslaughter is established?