Definitions

General partnership

General partnership

In the commercial and legal parlance of most countries, a general partnership or simply a partnership, refers to an association of persons or an unincorporated company with the following major features:

  • Created by agreement, proof of existence and estoppel.
  • Formed by two or more persons
  • The owners are all personally liable for any legal actions and debts the company may face

Characteristics

Partnerships have certain default characteristics relating to both (i) the relationship between the individual partners and (ii) the relationship between the partnership and the outside world. The former can generally be overridden by agreement between the partners, whereas the latter generally cannot be.

The assets of the business are owned on behalf of the other partners, and they are each personally liable, jointly and severally, for business debts, taxes or tortious liability. For example, if a partnership defaults on a payment to a creditor, the partners' personal assets are subject to attachment and liquidation to pay the creditor.

By default, profits are shared equally amongst the partners. However, a partnership agreement will almost invariably expressly provide for the manner in which profits and losses are to be shared.

Each general partner is deemed the agent of the partnership. Therefore, if that partner is apparently carrying on partnership business, all general partners can be held liable for his dealings with third persons.

By default a partnership will terminate upon the death, disability, or even withdrawal of any one partner. However, most partnership agreements provide for these types of events, with the share of the departed partner usually being purchased by the remaining partners in the partnership.

By default, each general partner has an equal right to participate in the management and control of the business. Disagreements in the ordinary course of partnership business are decided by a majority of the partners, and disagreements of extraordinary matters and amendments to the partnership agreement require the consent of all partners. However, in a partnership of any size the partnership agreement will provide for certain electees to manage the partnership along the lines of a company board.

Unless otherwise provided in the partnership agreement, no one can become a member of the partnership without the consent of all partners, though a partner may assign his share of the profits and losses and right to receive distributions ("transferable interest"). A partner's judgment creditor may obtain an order charging the partner's "transferable interest" to satisfy a judgment.

Separate legal personality

There has been considerable debate in most states as to whether a partnership should remain aggregate or be allowed to become a business entity with a separate legal personality.

In the United States, section 201 of the Revised Uniform Partnership Act (RUPA) of 1994 provides that "A partnership is an entity distinct from its partners."

In England & Wales, a partnership does not have separate legal personality; although the English & Welsh Law Commission in Report 283 proposed to amend the law to create separate personality for all general partnerships, the British government has decided not to implement the proposals relating to general partnerships. The Law Commission's proposal to confer separate legal status on limited partnerships will be taken forward In Scotland partnerships do have some degree of legal personality. The Limited Liability Partnerships Act 2000 confers separate personality on LLPs.

While France, Luxembourg, Norway, the Czech Republic and Sweden also grant some degree of legal personality to commercial partnerships, other countries such as Belgium, Germany, Switzerland, and Poland do not allow partnerships to acquire a separate legal personality, but permit partnerships the rights to sue and be sued, to hold property, and to postpone a creditor’s lawsuit against the partners until he or she has exhausted all remedies against the partnership assets.

In December 2002 the Netherlands proposed to replace their ordinary partnership, which does not have legal personality, with a public partnership which allows the partners to opt for legal personality.

Japanese law provides for Civil Code , which have no legal personality, and Commercial Code which have full corporate personhood but otherwise function similarly to partnerships.

The two main consequences of allowing separate personality are that one partnership will be able to become a partner in another partnership in the same way that a registered company can, and a partnership will not be bound by the doctrine of ultra vires but will have unlimited legal capacity like any other natural person.

See also

References

DeMott, Deborah A. “Transatlantic Perspectives on Partnership Law: Risk and Instability”, (2001) 26 Journal of Corporation Law. 879-895.

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