Relationship Subsisting Between Parties in Business

The Partnership Act 1890 [1] governs the relationship subsisting between parties in the course of business with a view to make profit [2] . Since the unlimited partnership exists with no written agreement made between them, PA 1890 will by default regulate their relationship.

Pursuant to s36(1), though we weren’t told if Imran had published or placed notice of his retirement, if he has, he would not be liable for the debt if he has advertised in the London Gazette. Until then he would likely be classified as an “apparent member” (Tower Cabinet Co. v Ingram (1949) 2 KB 397) [3] . However, according to s5, each partner acts as the agent of the other partner and as such incurs liability for acts carried out in the name of the firm. Furthermore, under s14 PA1890, where a person gives credit to a firm acting in good faith under the understanding that a particular person is a partner, that person is liable to the creditor, in a case where the person allowed himself to be represented as a partner [4] . However, if Imran has not advertised in accordance with s36, and another partner used notepaper that had his name on it, while the notepaper was unauthorised, he may be able to claim that he should not be liable to the supplier [5] . 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.

Regarding Mike’s proposed removal from the firm, where there is no written agreement, s25 of the PA 1890 provides that “no majority of the partners can expel any partner unless a power to do so has been conferred by express agreement between the parties” [6] . In the absence of a written agreement, the parties would have to rely on common law principles that have evolved in light of the interpretation of the PA 1890 to resolve this situation. Under the common law, it is extremely difficult to prove an implied dissolution of a partnership under the PA 1890 [7] .

However, it has been held that while a court has no power to order the removal of a partner, it has power to order the dissolution of the partnership. Alternatively, therefore the remaining partners could ask the court to grant a Syers v Syers [8] order, which orders the dissolution of the company but orders that the shares owned by the remaining partner are paid to that party [9] . In Carmichael v Evans [10] , a partner was expelled from a partnership because he had been convicted of dishonesty, however this was a case where there was a written agreement between the parties and a term of that agreement gave the senior partner the power to expel a partner for “scandalous conduct”. The court, in this case therefore merely upheld the provision in s25 that provides that it can be varied where there is express agreement between the parties. It is unlikely that the parties in the problem would be able to rely on Carmichael [11] to support Mike’s expulsion; however the court may be willing to grant a Syers order.

Carl is under a fiduciary duty [12] not to profit personally from the firm [13] , and such profits are deemed to be “secret profits” [14] . Carl has possibly violated two statutory provisions by his conduct with the suppliers. First, s.28 as Carl failed to provide information and accurate accounts of all affairs affecting the firm regarding contract. Secondly, unarguably s29(1) for not disclosing all benefits gained as a result of the contract. In Bentley v Craven [15] , a partner was held to be in breach of s29(1) after profiting from an undisclosed personal goods sale to his partnership, and was held liable to refund he firm. So Carl will have to pay back the proceeds to the firm.

Further s30 imposes a duty on partners not to compete with the firm, and it specifically provides that “if a partner, without the consent of the other partners, carries on any business of the same nature as and competing with that of the firm, he must account for and pay over to the firm all profits made by him in that business”. These are fiduciary duties, which mean that Carl, acting as partner has a higher level of responsibility to the other partners than an ordinary person would have.

Carl may be liable to be sued by the other partners under s5 and s30 of the Act. It is likely that he is in breach of his duty not to make secret profits from the company [16] . Further in selling the fruits, Carl may have been acting as an agent of the firm, and as such as an agent of the other partners [17] . The remaining partners should explain this to him, and request that he returns the profits [18] .

The unlimited partnership is distinct from the limited partnership, in that in law the limited partnership is a separate entity. This means that it may be sued in its own right [19] , and the company itself is liable for its own debts [20] . In case of insolvency, the status of the company is a separate entity, means the debts of the company may be dealt with separately from the debts of the partners of the company. In an unlimited company, the debts of the company are the same as the debts of the partners, and as such creditors may pursue the personal assets of the partners in cases where there is a debt outstanding as was held in the cases of Barings PLC v Coopers and Lybrand (2003) EWHC 2371 [21] . Limited Liability Partnership Act 2000 has even made things better, this new business entity, which will combine limited liability, corporate personality and the advantages of partnership taxation, may prove attractive not only to the professions but also to many other businesses.

In conclusion, it is clear that the company has a much more limited range of rights and remedies that may be inferred in light of the absence of a written company agreement. It is also the case there is a much higher personal risk to the partners, and changing the status of the company to one that is of limited liability status would probably be a better option for the partners in question.