United Kingdom partnership law

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United Kingdom partnership law concerns the way that partnerships are formed or governed within the United Kingdom. Depending upon where the partnership was formed, English law, Scots law or Northern Irish law may apply in addition to statutes that create a framework across the UK. Under Scots law a partnership is a distinct legal entity and can borrow money from a bank in the name of the partnership, while English law only allows borrowing in the names of individual partners. Partnerships are a form of business association, which arises automatically when people carry on business with a view to a profit (Partnership Act 1890 s 1). Partners are jointly and severally liable, just as they own the property in common.

Contents

History

A limited partnership under the Limited Partnerships Act 1907 is similar to a partnership under the Partnership Act 1890, although there are two different types of partners: general partners, and limited partners. [1] A general partner treated in the same way as a partner under the Partnership Act 1890, and is liable for the debts and obligations of the firm. [1] A limited partner, unlike a general partner, enjoys limited liability, meaning that, provided they do not partake in any business management, they will not be liable for any debts or obligations beyond their investments. [2] If a limited partner does partake in business management, they will be treated as if they were a general partner, and will be liable for the debts and obligations of the firm incurred under their management. [3] A limited partnerships must be registered with Companies House in order to be treated as a limited partnerships; if unregistered, it will be treated as a partnership. [4]

A limited liability partnership (LLP) [5] under the Limited Liability Partnerships Act 2000 is legal person in its own right, and is distinct from the persons who own it (who are formally known as 'members', but often referred to as 'partners'). [6] [7] Generally, members enjoy limited liability, meaning they are not responsible for an LLP's debts or obligations. [7] In order to be incorporated, a limited liability partnership must, inter alia, have at least two members. [8] Generally, the law governing partnerships within the meaning of the Partnership Act 1890 and the Limited Partnerships Act 1907 does not apply to limited liability partnerships. [9] A notable exception to this, however, is in the respect of taxation: LLPs are treated as partnerships for tax purposes. [10]

In 2017, measures were introduced to make almost all UK companies identify their beneficial owners. This did not apply to partnerships in England, which resulted in an about a doubling of new partnership registrations, many presumably by owners who did not want such disclosure. A quarter of the 4,500 new partnerships in England from 2017 to 2021 were created by five UK-based agents. [11]

Common law

Partnerships were a common law phenomenon, dating back to the Roman law institution of a societas universorum quae ex quaestu veniunt, or a trade partnership.[ citation needed ]

Statutes

Partnership Act 1890

Section one of the 1890 Act defines partnership as ‘the relationship which subsists between persons carrying on a business in common with a view of profit.’ This can come about by oral agreement, written document or conduct. The minimum membership is two and the maximum since 2002 is unlimited. [13] The provisions of the Partnership Act 1890 apply unless expressly or impliedly excluded by agreement of the partners. Each partner is entitled to participate in management, get an equal share of profit, an indemnity in respect of liabilities assumed in the course of business and the right to not be expelled by other partners. A partnership ends on the death of a partner. A partner is jointly and severally liable for the debts of the others; there is no limited liability.

Limited Partnerships Act 1907

Only sleeping partners may have limited liability, and it must consist of at least one general partner and one limited partner.

Limited Liability Partnerships Act 2000

Under the 2000 Act, such partnerships are deemed to have legal personality. It allows limited liability for general trading debts, but individual partners cannot limit personal liability for negligence. It was introduced to allow some protection against large negligence actions, where the risks were felt[ by whom? ] to be excessive.

On 1 October 2008, [14] section 1,286 of the Companies Act 2006 extended the Limited Liability Partnerships Act 2000 to Northern Ireland, and repealed the Limited Liability Partnerships Act (Northern Ireland) 2002, [15] an act of the Northern Ireland Assembly which prior to that date was the principal statute concerning LLPs in Northern Ireland.

Quasi-partnerships

Under the law of England and Wales, a quasi-partnership is a legal creation brought about where the court needs to treat several shareholders of a company as mutually bound to each other to a greater extent than would generally be expected of such shareholders under company legislation. Sections 459-461 of the Companies Act 1985, replaced by Part 30 (sections 994–999) of the Companies Act 2006, refer to the objective of protecting company members against "unfair prejudice". [16] [17]

Where a company is a quasi-partnership at a time when it is being valued, especially for purposes of winding-up, the courts would expect the valuation to disregard the discount normally applied to a minority shareholding, [18] which reflects the fact that a minority owner does not have the power to direct the affairs of the business. [19] The courts in England and Wales "have repeatedly emphasised that the overriding requirement in quasi-partnership cases is that the price to be paid, where a buy-out order is made, should be fair". [18] : Sect. 5 

See also

Related Research Articles

<span class="mw-page-title-main">Partnership</span> Arrangement in which parties agree to cooperate to advance their mutual interests

A partnership is an arrangement where parties, known as business partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations. Organizations may partner to increase the likelihood of each achieving their mission and to amplify their reach. A partnership may result in issuing and holding equity or may be only governed by a contract.

The law of agency is an area of commercial law dealing with a set of contractual, quasi-contractual and non-contractual fiduciary relationships that involve a person, called the agent, that is authorized to act on behalf of another to create legal relations with a third party. Succinctly, it may be referred to as the equal relationship between a principal and an agent whereby the principal, expressly or implicitly, authorizes the agent to work under their control and on their behalf. The agent is, thus, required to negotiate on behalf of the principal or bring them and third parties into contractual relationship. This branch of law separates and regulates the relationships between:

<span class="mw-page-title-main">Limited liability partnership</span> Partnership in which some or all partners (depending on the jurisdiction) have limited liabilities

A limited liability partnership (LLP) is a partnership in which some or all partners have limited liabilities. It therefore can exhibit aspects of both partnerships and corporations. In an LLP, each partner is not responsible or liable for another partner's misconduct or negligence. This distinguishes an LLP from a traditional partnership under the UK Partnership Act 1890, in which each partner has joint liability. In an LLP, some or all partners have a form of limited liability similar to that of the shareholders of a corporation. Depending on the jurisdiction, however, the limited liability may extend only to the negligence or misconduct of the other partners, and the partners may be personally liable for other liabilities of the firm or partners.

<span class="mw-page-title-main">Private limited company</span> Type of company used in many jurisdictions

A private limited company is any type of business entity in "private" ownership used in many jurisdictions, in contrast to a publicly listed company, with some differences from country to country. Examples include the LLC in the United States, private company limited by shares in the United Kingdom, GmbH in Germany and Austria, Besloten vennootschap in The Netherlands, société à responsabilité limitée in France, and sociedad de responsabilidad limitada in the Spanish-speaking world. The benefit of having a private limited company is that there is limited liability. However, shares can only be sold to shareholders in the business, which means that it can be difficult to liquidate such a company.

Companies House is the executive agency of the British Government that maintains the register of companies, employs the company registrars and is responsible for incorporating all forms of companies in the United Kingdom.

<span class="mw-page-title-main">Limited liability</span> Business structure where shareholders cannot owe more than their stake in a venture

Limited liability is a legal status in which a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a corporation, company or partnership. If a company that provides limited liability to its investors is sued, then the claimants are generally entitled to collect only against the assets of the company, not the assets of its shareholders or other investors. A shareholder in a corporation or limited liability company is not personally liable for any of the debts of the company, other than for the amount already invested in the company and for any unpaid amount on the shares in the company, if any, except under special and rare circumstances permitting "piercing the corporate veil." The same is true for the members of a limited liability partnership and the limited partners in a limited partnership. By contrast, sole proprietors and partners in general partnerships are each liable for all the debts of the business.

A guarantee is a form of transaction in which one person, to obtain some trust, confidence or credit for another, engages to be answerable for them. It may also designate a treaty through which claims, rights or possessions are secured. It is to be differentiated from the colloquial "personal guarantee" in that a guarantee is a legal concept which produces an economic effect. A personal guarantee by contrast is often used to refer to a promise made by an individual which is supported by, or assured through, the word of the individual. In the same way, a guarantee produces a legal effect wherein one party affirms the promise of another by promising to themselves pay if default occurs.

<span class="mw-page-title-main">Limited partnership</span> Form of partnership

A limited partnership (LP) is a form of partnership similar to a general partnership except that while a general partnership must have at least two general partners (GPs), a limited partnership must have at least one GP and at least one limited partner. Limited partnerships are distinct from limited liability partnerships, in which all partners have limited liability.

<span class="mw-page-title-main">General partnership</span> Basic form of partnership under common law

A general partnership, the basic form of partnership under common law, is in most countries an association of persons or an unincorporated company with the following major features:

<span class="mw-page-title-main">Limited liability limited partnership</span> Business entity in U.S. commercial law

The limited liability limited partnership (LLLP) is a relatively new modification of the limited partnership. The LLLP form of business entity is recognized under United States commercial law. An LLLP is a limited partnership, and it consists of one or more general partners who are liable for the obligations of the entity, as well as or more protected-liability limited partners. Typically, general partners manage the LLLP, while the limited partners' interest is purely financial. Thus, the most common use of limited partnership is for purposes of investment.

<span class="mw-page-title-main">Limited Liability Partnerships Act 2000</span> United Kingdom legislation

The Limited Liability Partnerships Act 2000 (c.12) is an Act of the Parliament of the United Kingdom which introduced the concept of the limited liability partnership into English and Scots law. It created an LLP as a body with legal personality separate from its members which is governed under a hybrid system of law partially from company law and partially from partnership law. Unlike normal partnerships the liability of members of an LLP on winding up is limited to the amount of capital they contributed to the LLP.

<span class="mw-page-title-main">Limited Liability Act 1855</span> United Kingdom legislation

The Limited Liability Act 1855 was an Act of the Parliament of the United Kingdom that first expressly allowed limited liability for corporations that could be established by the general public in England and Wales as well as Ireland. The Act did not apply to Scotland, where the limited liability of shareholders for the debts company debts had been recognised since the mid-Eighteenth century with the decision in the case of Stevenson v McNair. Although the validity of the decision in that case had come to be doubted by the mid-Nineteenth century, the Joint Stock Companies Act 1856 – which applied across the UK – put the matter beyond doubt, settling that Scottish 'companies' could be possessed of both separate legal personality and limited liability.

<span class="mw-page-title-main">Limited Liability Partnerships Act (Northern Ireland) 2002</span> United Kingdom legislation

The Limited Liability Partnerships Act 2002 is an Act of the Northern Ireland Assembly which introduced the concept of the limited liability partnership into Northern Irish law, passed two years after the Limited Liability Partnerships Act 2000 introduced the concept into the law of England and Wales and Scots law.

There are many ways in which a business may be owned under the legal system of England and Wales.

General partner is a person who joins with at least one other person to form a business. A general partner has responsibility for the actions of the business, can legally bind the business and is personally liable for all the partnership's debts and obligations.

In the United Kingdom, a limited partnership consists of:

<span class="mw-page-title-main">Partnership Act 1890</span> United Kingdom legislation

The Partnership Act 1890 is an Act of the Parliament of the United Kingdom which governs the rights and duties of people or corporate entities conducting business in partnership. A partnership is defined in the act as 'the relation which subsists between persons carrying on a business in common with a view of profit.'

<span class="mw-page-title-main">Corporate law in Vietnam</span>

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Anguillan company law is primarily codified in three principal statutes:

  1. the International Business Companies Act ;
  2. the Companies Act ; and
  3. the Limited Liability Companies Act.

References

  1. 1 2 Limited Partnerships Act 1907, section 4(2)
  2. ↑ Limited Partnerships Act 1907, sections 4(2A) and 4(2B)
  3. ↑ Limited Partnerships Act 1907, section 6(1)
  4. ↑ "Register a limited partnership". GOV.UK (Guidance). 27 July 2017. Retrieved 2021-01-16.
  5. ↑ Limited Liability Partnerships Act 2000, Schedule Part 1, paragraph 2(1)(b)
  6. ↑ Limited Liability Partnerships Act 2002, section 1(2)
  7. 1 2 "Limited liability partnerships (LLP): overview". Practical Law. Thomson Reuters. Retrieved 2021-01-16.
  8. ↑ Limited Liability Partnerships Act 2000, section 2(1)(a)
  9. ↑ Limited Liability Partnerships Act 2000, section 1(5)
  10. ↑ Limited Liability Partnerships Act 2000, sections 10-13
  11. ↑ Oliver, James; Stylianou, Nassos; Dahlgreen, Will; Swann, Steve (4 August 2022). "Banned Russian oligarchs exploited UK secrecy loophole". BBC News. Retrieved 4 August 2022.
  12. ↑ Robertson, Maxwell Alexander, ed. (1900). "Waugh against Carver, Carver and Giesler [1793] EngR 1595; (1793) 2 H Bl 235; 126 E.R. 525 (23 November 1793)" (PDF). English Reports. Vol. 126: Common Pleas IV. pp. 525–533.
  13. ↑ UK government. "The Regulatory Reform (Removal of 20 Member Limit in Partnerships etc.) Order 2002". legislation.gov.uk. Retrieved 2 November 2022.
  14. ↑ The Companies Act 2006 (Commencement No. 7, Transitional Provisions and Savings) Order 2008 (SI 2008 No. 1886), article 2(e)
  15. ↑ Companies Act 2006, sections 1286(1)(a) and 1286(2)(a)
  16. ↑ UK Legislation, Companies Act 1985, Part XVII: Protection of Company's Members against Unfair Prejudice, accessed 21 January 2023
  17. ↑ UK Legislation, Companies Act 2006, Part 30: Protection of Members against Unfair Prejudice, accessed 21 January 2023
  18. 1 2 England and Wales High Court (Chancery Division), Irvine & Ors v Irvine & Anor, EWHC 583 (Ch), delivered 23 March 2006, accessed 16 December 2022
  19. ↑ FamilyLaw, ANCILLARY RELIEF/PROPERTY: Irvine v Irvine [2006] EWHC 583 (Ch), published 31 March 2006, accessed 21 January 2023

Further reading

UK legislation

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