Chapter 5Non-corporate organisations – sole traders and partnershipsThe general partner
This is the usual type of partner who, under s 24, has the
right to take part in the management of the business
unless there is an agreement between himself and the
other partner(s) that he should not. For example, the
partnership agreement may say that some junior part-
ners are not to order goods or sign cheques. We shall
see, however, that, in spite of restrictions of this kind,
if a junior partner ordered goods on behalf of the firm,
though he had no authority to do so, the contract would
be good and the seller could sue the partners for the
price if they did not pay.
However, by ignoring the partnership agreement and
making unauthorised contracts in this way, the junior
partner could give his co-partners grounds to dissolve the
firm, on the grounds that he was in breach of the partner-
ship agreement, and exclude him from their future busi-
ness operations.
The dormant partner
The 1890 Act does not mention this type of partner but
in fact he is a partner who puts money (capital) into the
firm but takes no active part in the management of the
business. If he does take part in management, he would
cease to be a dormant partner and become a general
partner.
The salaried partner
It is quite common today, at least in professional prac-
tices of, for example, solicitors and accountants, to offer
a young assistant a salaried partnership without the
assistant putting any money into the firm as the general
(or equity) partners do.
Normally, these salaried partners are paid a salary just
as an employee is with tax and national insurance being
deducted from it. They are not partners for the purpose
of dissolving the firm. If they want to leave they do so by
serving out their notice or getting paid instead.
However, because they usually appear on the firm’s
letterheading as partners, or on the list of partners for
inspection under the Business Names Act 1985 (see later),
they could, according to the decision in Stekelv Ellice
(1973), be liable to pay the debts of the firm as a partner
if the outsider has reliedon their status as such.
Because of this case a salaried partner should get a full
indemnity, as it is called, from the general partners in
case he is made to pay the firm’s debts or meet its liabil-
ity to its clients. In practice this will not happen unless
the firm has not paid its debts or satisfied its liability to
clients. Liability as a partner is joint and several so that
if A is a full partner and B a salaried partner, and the
debt £2,000, either A or B could be made to pay it all
and then claim only a contribution, which would often
be one half, from the other partner. Thus, if B pays
the £2,000, he is entitled to £1,000 from A. However, if
B gets an indemnity from A, then if B has to pay the
£2,000, he can recover all of it from A.
There is no real problem for the salaried partner in
the large firm which has insurance and extensive assets,
but the practice has spread to medium and small firms
of, e.g. accountants and solicitors where problems could
arise in terms of partner liability.
An illustration involving a small law firm appears
below.115
Nationwide Building Societyv Lewis
(1998)
Bryan Lewis & Co, a two-partner law firm, was sued by
the building society for alleged negligence in connection
with advice given to the society on a mortgage applica-
tion. The second defendant was a Mr Williams who was
a salaried partner described as a partner on the firm’s
letterhead. Mr Lewis wrote the relevant report which
allegedly contained negligent advice but was bankrupt
and the society pursued its claim for damages against
Mr Williams. He was found initially by the High Court to
be jointly and severally liable with Mr Lewis and required
to pay any damages awarded without much hope of get-
ting a contribution from Mr Lewis, and this even though
Mr Williams did not write the relevant report and played
no part in its preparation. On appeal he was held not
liable. The society had not relied on him as a partner.
It appeared that the society had had no dealings with
Mr Williams and only knew of him when it received the
firm’s letter which accompanied the report.
Comment. The Court of Appeal did not change the gen-
eral principles of the law relating to the holding-out liab-
ilities of salaried partners. It was merely that the judges
did not feel that they applied to the facts of this case. In
other circumstances a salaried partner may well find that
there is liability as a ‘held-out’ equity partner.Salaried partners: a comment
It will not often be the case that a salaried partner will
be liable under s 14 of the 1890 Act (holding out) (see