Partnership law (Partnership Act 1890)

BLP.08 — Partnership Law (Partnership Act 1890)

Definition (s.1 PA 1890). A partnership is "the relation which subsists between persons carrying on a business in common with a view of profit." All three limbs must be met. No formalities, no registration, no written agreement required — a partnership can arise unintentionally. (Contrast: an LLP needs registration at Companies House; a company needs incorporation.)

Is there a partnership? (s.2 rules). Co-ownership of property is not itself a partnership. Sharing gross returns is not itself a partnership. Sharing net profits is prima facie evidence of partnership (rebuttable). But s.2(3) lists payments that look like profit-share yet do not make someone a partner: repayment of a debt by instalments out of profits, an employee/agent paid by profit-share, a lender whose interest varies with profits, etc.

Relations between partners (default terms — only apply absent contrary agreement):

• s.24(1) — partners share capital and profits equally and bear losses equally (regardless of unequal capital contributions — a classic trap).
• s.24(5) — every partner may take part in management.
• s.24(6) — no partner is entitled to a salary.
• s.24(7) — no new partner may be introduced without unanimous consent.
• s.24(8) — ordinary decisions by majority; but s.24(8) also requires unanimity to change the nature of the business.
• s.19 — any term can be varied by unanimous consent (including conduct/course of dealing).

Liability to outsiders (mandatory — cannot be contracted out of against third parties):

• s.5 — each partner is an agent of the firm; the firm is bound by acts "carrying on in the usual way business of the kind" carried on by the firm, unless the partner lacked authority and the third party knew that or didn't know/believe them to be a partner.
• s.9 — partners are jointly liable for the firm's debts and obligations.
• s.10/s.12 — liability for wrongs is joint and several.
• s.14 — holding out: a person who represents (or knowingly allows themselves to be represented) as a partner is liable to anyone who gives credit on that basis.
• s.17 — an incoming partner is not liable for debts incurred before joining; a retiring partner remains liable for debts incurred while a partner, and stays liable to existing customers for future debts unless proper notice is given (s.36) — actual notice to existing customers, London Gazette notice for the rest.

Dissolution (default position):

• s.32 — automatic dissolution on expiry of a fixed term (s.32(a)) or completion of the single venture/undertaking (s.32(b)).
• s.32(c) — a partnership at will (one of undefined duration) is dissolved by any partner giving notice; dissolution takes effect immediately (or on the date named in the notice), no reason needed. Trap: don't cite s.26 for this — s.26 is the partner's right to retire from / determine a partnership at will by notice; the rule that dissolves the firm by notice is s.32(c). (Both are often cited together, but the dissolution provision is s.32(c).)
• s.33 — death or bankruptcy of a partner dissolves the whole firm (default — often disapplied by agreement).
• s.35 — court-ordered dissolution (incapacity, prejudicial conduct, business carried on only at a loss, just and equitable).
• s.44 — order of distribution on winding up: pay outside creditors first, then partners' advances/loans, then return of capital, then any surplus shared as profits.

Common traps:

• Losses are shared equally by default even if capital contributions differ.
• A partnership exists on the substance (s.1 test), not on labels — calling it "not a partnership" doesn't help if the three limbs are met.
• s.26 (retire by notice) vs s.32(c) (dissolve by notice) — distractor-rich; the firm-ending provision for a partnership at will is s.32(c).
• s.24/s.32–33 are defaults displaceable by the partnership agreement; s.5, s.9, s.14, s.17, s.36 govern third parties and are not.
• Retiring partner liability persists without proper s.36 notice — test the existing customer (actual notice) vs world (Gazette notice) distinction.