336 Chapter 12Partnership, limited liability partnership and choice of legal status
The partnership deed
A very simple partnership deed is reproduced opposite. It should be stressed that such
a deed is very brief and is only a model. In its current form it is unlikely to be ideal for
many firms. The partners should ensure that changes are made to suit their particular
circumstances.
More complicated partnership deeds can run to several thousand words. These deeds
cover the same matters as the simple deed in very much more detail. In addition, they might
contain articles dealing with matters such as leasing premises, payment of private debts,
negative covenants, banking arrangements, retirement provisions, expulsion of partners,
provisions for retiring partners, options to purchase the share of outgoing partners, income
tax and retirement annuities.
Section 19 provides that the partnership deed can be altered only by unanimous consent
of the partners and this consent can be inferred from the conduct of the partners. In Const
vHarris (1824)Lord Eldon gave the following example of how this might happen:
If in a common partnership, the parties agree that no one of them shall draw or accept a bill of
exchange in his own name, without the concurrence of all the others, yet, if they afterwards slide
into a habit of permitting one of them to draw or accept bills, without the concurrence of the others,
this Court will hold that they have varied the terms of the original agreement in that respect.Absence of written partnership agreement
If there is no written partnership agreement, then it may be very difficult to state whether
or not there is a partnership. Many people who are partners do not realise that they are.
The decision as to whether or not a partnership exists is based on ss. 1 and 2 of the
Partnership Act 1890.
As we have seen, s. 1 provides the classic definition of a partnership as: ‘the relation
which subsists between persons carrying on a business in common with a view of profit’.
Partnership is a contractual relationship. Ultimately, the question is whether those who
carried on the business made a contract with each other, expressly or impliedly, that they
should carry on a business with each other to try and make a profit. It should be noticed that
the question is not whether they made a contract with each other agreeing that they would
be partners.Management of partnerships
Usually, a partnership agreement will state that most disputes between partners can be
resolved by a simple vote. If this is the case then each partner will have one vote and the
majority will get their way. Of course, many partnership agreements do not say this; they
might state that one partner’s vote is to count more than another’s, or that certain partners
are to have a veto over certain issues.Implied rules of partnerships
Partners do not need to make any formal agreement. Indeed, those trading as partners may
not come to any agreement at all about important matters. Section 24 of the Partnership Act
1890 therefore lays down a number of rules about the management of a partnership. These
rules will apply only if no agreement has been made, or if the agreement made does not
cover the situation in question; they are therefore known as default provisions. Section 19
provides that the rules in s. 24 can be changed only by the express or implied agreement of
all of the partners. The rules contained in s. 24 are as follows.