12. Limited Liability Partnerships—Liability to Third Parties

This chapter discusses the liabilities of members of limited liability partnerships (LLP) to third parties. Aside from its debts, an LLP may be liable either in its own right as the contracting party or tortfeasor by way of attribution or vicariously for the acts of its agents and employees as any other principal or employee. Under the Limited Liability Partnerships Act (2000), an individual member's personal liability for his or her own negligence whilst acting on behalf of the LLP will be a matter for the courts to determine, by analogy with the direct liability of a director as set out by the House of Lords. The chapter describes the different liabilities that emerge based on the agreed contributions by members, the contributions by court order, and by shadow members. It concludes by examining the liabilities for contracts, torts, and other wrongs.

8. Partnerships and Insolvency

This chapter considers the insolvency of a partnership. It analyses the Insolvency Act 1986 which contains the provisions that deal with the variations of insolvency, and the amendments to the Act throughout the years. Under English law, it is possible to have a bankrupt partner or partners with or without an insolvent partnership and to have an insolvent partnership with or without a bankrupt partner or partners. Taking this into consideration, the chapter distinguishes between partnership creditors (those whose debts are against the firm) and the separate private creditors of the individual partners, and between the assets of the firm and those of the partners or partnership property. It also defines the roles of the joint creditors, separate creditors, the joint estate, and the separate estates involved in insolvency proceedings.

2. Establishing a Partnership

This chapter deals with rules governing precisely how and when a partnership is or is not established and the circumstances in which the question might be raised. It considers the importance of establishing a partnership or partnership liability, which arises in three basic situations. First, when a person who has dealt with a business seeks to make another person liable as a partner in that business — sometimes this is called the ‘outsider question’. The second situation arises when one person seeks to enforce a duty or obligation on another — this can be called the ‘insider question.’ The third case is in the field of taxation and other public regulation areas, since it may be in the parties' interest to establish a partnership for such purposes (or, alternatively, for the authorities to establish one).

9. Limited Partnerships

This chapter considers the origins and development of a limited partnership, created under the Limited Partnerships Act 1907 (LPA). The intention behind the 1907 Act was to allow the partnership form to be used by those who simply wanted to invest in a business under the protection of limited liability (up to the amount invested) for the debts of the firm. The partners (known as general partners) who ran the business would have no such protection. The chapter first examines the rights and duties of limited partners under the LPA and how these vary from general partnership law. It also looks into proposed changes made by the then Department for Business, Enterprise and Regulatory Reform regarding the law on limited partnerships.

5. Partners and Each Other

This chapter explores the two aspects of internal partnership relations, fiduciary duties out of the fiduciary relationship and contractual duties and obligations arising from the agreement. It emphasizes the ‘good faith’ principle in partnerships, considered to be the foundation of every partnership. Alongside good faith between partners is the duty to care which is expressed through the standard of skill to be expected. The chapter first assesses this standard. It then provides an overview of fiduciary duties, examining the three main aspects of fiduciary duties incorporated in Sections 28 to 30 of the Partnership Act 1890 which relate to honesty and full disclosure, unauthorized personal profits, and conflict of duty and interest. These fiduciary duties may cease when one partner repudiates the partnership agreement, such as by refusing to honour financial obligations.

11. Limited Liability Partnerships—Membership

This chapter considers the requirements needed to become a member of a limited liability partnership (LLP) under the Limited Liability Partnerships Act 2000 (LLP Act). The term ‘member’ of an LLP is used to distinguish them from partners, directors, or shareholders. Since the law applicable to LLPs derives mainly from adaptations from both company law and partnership law, members of an LLP are nevertheless treated as substituting for the role of partner, director, officer, or shareholder depending upon the relevant provision. For the various controls imposed on LLPs and for winding up, members can take the place either of shareholders, directors, or both. The chapter analyses members of an LLP as employees and workers. It then outlines the duties of members of an LLP and to each other as stated in Section 5 of the LLP Act.

10. Limited Liability Partnerships—The Corporate Structure

This chapter explores the development and nature of a limited liability partnership (LLP), created under the Limited Liability Partnerships Act 2000 (LLP Act). Under the Act, any two or more persons (individuals or companies) may form an LLP as an alternative to a partnership, a limited partnership, and a private company. The impetus for LLP came from large accountancy firms concerned by the potential liability of partners for substantial damages awarded against them for the negligence of one partner, often in a totally different office. The aim was to set up a new entity which would preserve the internal informality of the traditional partnership whilst giving the partners limited liability for the debts of the firm. The chapter analyses the provisions of the LLP Act, and the other major sources of laws covering LLPs.

6. Partnership Property

This chapter determines the ‘partnership property’ of partners in a firm and the issues that emerge in determining them. It first defines partnership property under the Partnership Act 1890 and then looks into five potential problem areas. First, there is the issue of when there is an insolvency both of the firm and its partners. The second problem area happens if an asset is of beneficial ownership. The third problem area is during the application of fiduciary duties where an asset is a partnership asset, the rules of equity will apply to any profit or benefit derived by a partner from that asset. The fourth happens where partnership property is to be held by the partners as trustees for themselves beneficially as tenants in common. Lastly, the fifth area concerns the application of the equitable doctrine of conversion to partnership property.

1. Partnerships and Partnership Law

This chapter briefly defines and examines the essential principles of a partnership, highlighting the definition of a partnership as stated in the Partnership Act 1890. It also emphasizes the term ‘relation’ as given in the definition. A partnership is a relationship arising from a contract, which if established governs the rights and duties between the parties and their relationships vis-à-vis the rest of the society. Unlike a company, a partnership does not confer any limited liability on the partners. Putting all of this into consideration, the chapter analyses the basic concepts of limited liability partnerships (LLP) introduced into English and Scots law by the Limited Liability Partnerships Act 2000. The Act defines LLP as a hybrid between a company and partnership. The chapter concludes with overview of the development of partnerships, looking into the basis behind the Partnership Act of 1890, and some of the main issues that concern partnerships.

7. Dissolution and Winding Up

This chapter explores the dissolution of partnerships. There are essentially two distinct situations which are referred to as a dissolution. The first one is the general dissolution wherein the whole business is wrapped up as a going concern, with each of the former partners receiving a share of the assets after the creditors have been paid. The second dissolution, referred to as retirement, mainly centres on the value of the outgoing partner's share; the business remains intact and is carried on by the remaining partners. The chapter analyses the implied terms and expressed clauses of dissolution in a contract, while simultaneously considering Sections 32 to 44 of the Partnership Act 1890.