Partnership Law in Ireland PDF

Preview

Summary

company and partnership law...

Description

Partnership Law in Ireland

Written partnership agreement in any partnership is crucial.

Because if you do not have one, then the Partnership act 1890 will govern your relations with your partner.

Partnerships are an important part of business life in Ireland for a number of reasons including taxation, accounting, and disclosure advantages over limited companies. 1) any time 2 or more people come together to carry on business and do not form a company the law assumes they are in partnership. They are then subject to partnership law which dates back to the Partnership Act of 1890.

2) Professionals such as doctors,lawyers,dentists,vets,accountants

3) There are advantages over forming a company from the point of view of tax, accounting and disclosure requirements.

Unlike a company a partnership is not a separate legal identity which means that partners have unlimited liability, unlike directors or shareholders in companies.

And partnerships do not have to go through any registration process to be formed.

The downside is that each partner is liable for the losses of his co-partner in carrying on the partnership business, even where the other partner has defrauded clients of the business.

Definition of Partnership

1

Partnership Act 1890 defines a partnership and essentially states that where 2 or more people carry on business with a common view of profit, then a partnership exists.

A written partnership agreement is not necessary.

And where 2 or more companies come together to carry on business to make a profit then unless they have set up a special purpose joint venture company a partnership will be deemed to exist.

However it is important to note that Co-ownership of property alone does not mean that a partnership exists; there must be a sharing of any profits between partners.

Generally the maximum number of partners allowed is 20;however there are exceptions made for solicitors and accountants. Types of Partnership

There are 2 types of partnership:

1.

an informal partnership (partnership at will) and

2.

formal partnership (fixed term partnership).

Why is it important to have a written partnership agreement?

Because if there is not either an implied or express agreement the partnership will be considered in the eyes of the law a partnership at will and will be governed by an act from 1890….which in most cases is wholly inappropriate for modern business.

For example without a written partnership agreement the 1890 Partnership act will mean that

2

1) there is no right to expel a partner

2) any partner may dissolve the partnership

3) if a partner dies, the firm will automatically dissolve

4 ) there is no power to retire under the Partnership act.

These are pretty crucial reasons for partners to set down their agreement and understanding in a written partnership agreement.

Business Name of Partnership

If the partnership is carried on under a name which does not consist of the surnames of the partners, then the partnership must register a business name and publish the names of the partners on the firm’s stationery. In the event of a dispute, this may be very important as it may indicate when somebody became or ceased to be a partner.

Partners rights under the 1890 act

1) every partner may take part in the management of the business so if this in not desired then a written agreement should reflect the wishes of the partners.

2) a simple majority of partners is all that is required to make a decision.

Again if this is not desired then a written agreement is a must. However this is tempered by the requirements that

3

a) all the partners must exercise their powers for the benefit of the partnership as a whole

b) to change the partnership business there must be unanimity

c) no partner may be introduced without the consent of all the partners d) a partner may not be expelled by a majority.

Majority Rule in a Partnership

There are 2 restrictions on the capacity of partners to bind the whole partnership by a majority vote:

1.

partners have a fiduciary duty to each other and must exercise their rights for the benefit of the partnership as a whole

2.

sections 24 and 25 of the Partnership Act, 1890 limit the powers of partners to use majority rule.

Section 24 (8) requires unanimity for a change in the partnership business;

section 24 (7) provides that no partner may be introduced without the consent of all the partners

section 25 prohibits the expulsion of a partner by a majority of the partners unless all partners have expressly agree to such a power being conferred. However there is no right to expel under the default agreement situation.

Fiduciary Duty of Partners

A partner has a fiduciary duty to co-partners under common law. 4

However, the Partnership Act, 1890 also provides as follows:

section 28 provides that partners are bound to render through accounts and full information of all things affecting the partnership..

section 29 provides that a partner must account to the partnership for any profits made from partnership property

section 30 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.”

However this does not prevent a former partner from competing with the former partnership. Written Partnership agreement

It is pretty clear that having a written partnership agreement is crucial to the smooth running of the partnership and to ensure that the wishes of the partners at the outset are carried out.

The Partnership act 1890 does not prevent a former partner from competing with the firm after he leaves and for this reason it is common for modern partnership agreements to have a non compete agreement…generally for a maximum of 2 years. Financial rights of partners

The default position from the 1890 act is that all partners are entitled to share equally in the profits and capital of the partnership and must contribute equally to the losses.

5

This means that even if a partner does not contribute capital in the same proportions as the other partners he is still entitled to share in the profits equally.

The 1890 Act also deals with interest on capital, interest on loans, remuneration of partners, and drawings.

Remuneration of Partners

The Partnership act 1890 states that no partner is entitled to remuneration for acting in the partnership business. Clearly a written agreement is a necessity and should also set out the provisions for the drawings of partners.

Partnership Property

It is very important to decide at the outset which is partnership property and which belongs to individual partners. It is important to note that the 1890 act presumes that property used in the partnership is partnership property and that property bought with partnership funds is partnership property.

So it should be clarified from the start who owns what……and what is partnership property and what is not.

Liability of partners to third parties

Partners are liable for the debts and obligations of the partnership without limitation.

And where a creditor can not get money due to him from the partnership he is entitled to get his money from the partners personally. Generally a partner acting within the scope of his authority binds the whole partnership legally.

6

However he must act as a partner and it must be within the ordinary course of business of the partnership.

If a partner can work his way out of binding his firm to an outsider then he himself will be made personally liable.

A partner can bind the partnership arising from his authority which may be



express authority



implied authority



ostensible authority.

However, the act must be done by a partner as partner of the partnership within the ordinary course of business of the partnership. If a partner was acting outside the partnership in a different capacity, she would not bind the firm.

Actions Between Partners

Rows and disputes between partners are, unfortunately, quite common.

Any litigation between partners will be strongly influenced by 2 factors: 1.

courts are reluctant to allow partners to sue other partners on foot of a single partnership obligation. Instead they tend to prefer that all partnership obligations be determined as part of a general settlement of accounts on the dissolution of the partnership;

2.

courts are reluctant to compel an unwilling partner to be a partner of another. Accordingly the specific performance of partnerships are only granted reluctantly and not too often.

Dissolution of Partnership 7

Dissolution of a partnership can occur by 1) automatically eg on the death or bankruptcy of a partner

2 ) by notice (section 26 or 32 (c) ie any partner can just dissolve the partnership by giving notice in the absence of any express or implied contrary agreement. The notice will take effect from the date set out in the notice, but this date cannot be before the date of receipt of the notice.

Once the partnership is dissolved, any partner can demand the sale of partnership assets in order to discharge the liabilities of the firm.

3) illegality-partnerships formed to carry out an illegal activity or an activity contrary to public policy are automatically dissolved

4) by expiration-either at the end of the partnership term or on the completion of a specific undertaking for which the partnership was formed

5) dissolution by the court-section 35 provides statutory grounds for dissolution by a court including where



a partner is of unsound mind



a partner becomes permanently incapable of performing his part of the partnership contract



a partner’s behaviour is prejudicially affecting the partnership business



a partner is in breach of the partnership agreement



where the partnership can only be carried on at a loss



where it is just and equitable to dissolve the partnership.

Dissolution of Partnership by Court as a Remedy in a Dispute

8

The court can dissolve a partnership under section 35 of the Partnership Act, 1890 where it decides that

a) a partner has carried on in a way that is damaging to the business

b) where a partner commits a breach of the agreement consistently c) whenever the court decides that is just and reasonable to dissolve it.

Courts can also appoint a receiver/manager to preserve partnership assets where it decides it is appropriate to do so. Types of Partnership Dissolution

There are two types of dissolution of partnership:

1.

A general dissolution and

2.

A technical dissolution.

General Dissolution of Partnership

This occurs where the partnership is ended and the business is wound up and the partnership assets are sold. Section 39 of the Partnership Act, 1890 allows a partner to force the general dissolution of the firm.

Technical Dissolution of Partnership

A technical dissolution will occur where there is a change in partners, either by a partner leaving or a new partner joining the firm. The death or bankruptcy of a partner will also lead to a technical dissolution.

9

It will become a general dissolution if the remaining partners decide to sell the assets of the partnership and wind up the business.

No right to expel a partner

Under the Partnership act 1890 there is no right to expel a partner,no matter how negligent or unprofessional he is, so this is another important reason to have a written partnership agreement drawn up.

Consequences of dissolution of Partnership

Where a firm goes into general dissolution the assets of the partnership will be sold to pay the debts of the partnership.

It is important to be aware that if there is insufficient funds to pay creditors then in the absence of an agreement to the contrary each partner will have to contribute equally to those losses…..regardless of the contributions of capital by each partner at the outset.

In order for a partner to protect himself after dissolution he must give notice to all existing customers to avoid any liability after the dissolution.

It is vital that a former partner notifies customers of the partnership that he is no longer a partner or he could be held liable under the Partnership act 1890 for any obligations incurred by the partnership after his departure. Any partnership agreement must provide for the share of the departing partner to be purchased by the continuing partners and must provide for what will occur on the death of a partner.

As you can see there are many, many good reasons to have a written partnership agreement drafted if you are going into a partnership.

10

If you do not then the Partnership Act 1890 will govern your relationship with your partners and as you can see it is completely inappropriate for modern commercial activity.

Fiduciary relationship someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. Highest standard of care

Arif v Excess Insurance Group Shows the consequences of separate legal personality. Arifs brother owned a hotel. Arif and brother as partners ran a business from the hotel. A and B run a business in the hotel. Arif insures the business in his own name. Hotel is insured by Arif. Hotel burns down. Arif tries to claim insurance. He has no insurable interest. Hotel can be insured by partnership or brother. He himself had no insurable interest.

Gross returns rule cox v coulson. Theatrical group and theatre reached an agreement whereby the theatre owner let them put on a show and would pay for the costs. Theatrical group would deal with scenery. The gross returns would be shared equally.

Newstead v Frost 1980 Need not be formed to make a trading profit. Tax avoidance can be sufficient Set up money which should have gone to a person for an income instead was paid into a partnership in the bahamas and 95% of profits were paid off to frost. Tax authorities wanted to get some of this. HEld that any profit purpose of gaining a benefit was considered a profit. Inland revenue was able to tax it on basis that there was a valid partnership.

11

Mercantile Credit Co v Garrod Mechanic and money lender. Operating a garage service. One partner mechanic and other money person. Expressly agreed between the two that they money man did not have the right to sell cars. He does. Not bone fide. Person who purchased the car does not get the car. They have to claim against the partnership. Would you reasonably expect that a person working in a garage would be able to sell the car - reasonable presumption- implied authority.

Paterson Brothers v Gladstone Borrowed money from a money lender with an interest rate at 40%. Partner defaulted money lender tried to hold partnership liable. Found not to be liable. Well known firm good credit and reputation. Up to you the lender to be ensured that this is a legitimate offer

Pre retirement debts. No release section 17(2) Welsh v Knarston Fact of retirement does not release retired partner form liability for debts or obligations incurred before his retirement - Section 17(2)

Cabinet company v Ingrim - partner left but continued to be seen on letterheads. - continued to be seen on letter heads even though retired. 3rd party sought to catch in diligence the former partner on principle of holding out.

decision making May be restricted by agreement - Paterson Bros v Gladstone - The partnership shall not be liable for unusual transactions (s7) Borrowed money in firms name for himself, wasnt allowed to. firm not liable

12

Negligence afftecting / harming partners only Mair v Wood and others 1948. Partners in a joint adventure (one off partnership) a partner in a joint adventure of share fishing with 4 others was injured when the vessel and her crew were at sea in pursuance of the joint adventure. He brought an action of damages on the ground of negligence. Court held that a joint adventure was a species of partnership and that there was no warrent for holding that by the common law of scotland

Duty to disclose accounts section 28. Ferguson v Mackay 1985 - The former senior partner of a firm of slocitors raised an action f damages against the firm and his former partners. In terms of the partnership agreement he had the option to retire on the 5th April 1978.

Illegality Maillie v Swanney Section 34 is absolute. Illegality dissolves the firm but supervening illegality is a relatively rare occurence. Section 33 applies on death or bankruptcy. Section 35 provides for dissolute by the court on a discretionary basis where a ground of dissolution is made out. There is no common characteristic among the prescribed grounds other than that they are examples of relatively extreme situations in which it may be appropriate for the court to intervene in business

Kiley McPhail (aka Kiley Fitzgerald) v James Bourne [2008] EWHC 1235 (Ch), which involved members of the pop group Busted, covered a range of legal issues and arguments, including the ownership of IP rights, undue influence and fiduciary duties, the enforceability of settlement agreements and implied partnerships. Although the claimants were ultimately unsuccessful, for individuals or commercial parties engaged in a collaborative venture from which IP rights will arise, the case serves as a warning to avoid the imposition of a partnership arrangement. Facts Two of the original members of Busted, who left the group in 2001, claimed against the other two original members, who were joined in the band by new member Charlie Simpson. When the original band spilt in 2001, the members terminated 13

their agreement with their manager, Mr Rashman, and a dispute followed over which of the members owned the rights to six of the band's songs. This dispute was settled in 2002 by a settlement agreement in which the defendants received the rights to four of the songs and the claimants received the rights to the remaining two. In the present case the claimants tried to set aside the settlement agreement and thereby acquire ownership of, among other things, copyright in the four disputed songs. They also sought an account of the band’s profits, of which they alleged they were owed a share. Decision The claimants alleged that Rashman had induced them to enter into the settlement agreement by misrepresentations and the use of undue influence, and hoped to have the agreement set aside on this basis. However, the court found on the facts that the claimants had freely entered into the agreement; there had been no undue influence, misrepresentations, threats or improper pressure. The court also ruled th...