Partnership Under The 1890 Act

Under the Partnership Act 1890, there is no separate legal entity, with all partners essentially agents for one another. They are jointly liable for the debts of the partnership and they are jointly and severally liable for loss or damage arising from wrongful acts or omissions of any partner.

Partners have an implied duty of good faith. Accordingly, they must:

  • Act honestly in the best interest of the partnership and not for some ulterior motive.
  • Be truthful at all times.
  • Account for any benefit derived without the consent of the other partners.
  • Disclose all information including about one’s own misconduct.

The duty of good faith applies both before the partnership commences and during dissolution. It also applies in relation to expulsion of a partner and attempts to change the Partnership Agreement. It does not apply after retirement, but the retired partner continues to be liable for any breaches of duty whilst he was a partner and the fiduciary duty remains.

The decision of the majority cannot be made without regard to the views of the minority. The duty of good faith imposes the obligation to consult and take account of the views of the minority at all material times. Powers cannot be exercised capriciously or irrationally.

Similarly, the duty of good faith applies to the minority partner who may be under an obligation to offer his shares to the other partners rather than seeking to dissolve the partnership.

It is possible to contract out of most of the Provisions of the Act, but probably not out of the common law duty of good faith.

Actions taken in breach of good faith are voidable and the usual remedy is restitution.

Partnership disputes can create a situation where a disgruntled partner endeavours to establish a partnership at will or justification for dissolution under S35. There are two types of dissolution:

  1. Technical dissolution – this involves a change in the composition of the partners, which effectively means the end of the original partnership and the start of a new one. The business continues as before, with the retiring partners still liable for former debts, although the continuing partners may offer them the benefit of indemnities. This type of dissolution does not result, therefore, in a winding up of the business.
  2. General dissolution – this involves a full scale winding up involving the collection of all assets and payment of all liabilities. The authority of each partner continues during the process of dissolution, as far as it is necessary, for winding up the affairs of the partnership.

Dissolution can come about by:

  • Agreement.
  • Order of the court.
  • The happening of an event.

If you would like advice about setting up a partnership, or in relation to any issues you have within your partnership, Ashby Cohen can help you.

We are specialists in partnership law, and our years of experience as lawyers make us uniquely qualified to assist you with any partnership queries you may have.

Please contact us today for an initial free consultation.