338 Chapter 12Partnership, limited liability partnership and choice of legal status
Capital and profits
Section 24(1) states that all partners are entitled to share equally in the firm’s capital and
profits and all must contribute equally to losses of capital.
So if A and B go into partnership together and do not agree anything about profits and
losses then they will share these equally, even if they are doing different amounts of work
for the firm. In most partnerships profits and losses will not be shared equally because there
will be an agreement to the contrary.Indemnity
Section 24(2) states that if a partner incurs any expense in the ordinary and proper conduct
of the firm’s business, the firm must indemnify that partner in respect of the liability incurred.
For example, if partner A in firm ABC suddenly has to travel abroad on the firm’s busi-
ness then the firm must pay the expenses which A incurs.Interest on capital and advances
Section 24(4) tells us that a partner is not entitled to any interest on capital contributed to
the partnership.
But if a partner advances any money beyond the amount of capital he or she agreed to
contribute this is treated as a loan to the partnership. Section 24(3) provides that interest on
such loans should be paid at a rate of 5 per cent per annum. It is, of course, quite likely that
partnership agreements will make other rules, particularly about the rate of interest.Management
Section 24(5) provides that every partner may take part in the management of the firm. The
partnership deed might, however, state that partners do not have an equal right to manage.
If the deed went further and excluded one partner from management altogether, that
partner could apply to have the firm wound up on the just and equitable ground (see below
at p. 350). Such an exclusion of the right to manage would run contrary to the very
definition of a partner as a person who ‘carries on a business in common.. .’. We have seen
that partners will be liable for the firm’s debts. It would not be fair to make them liable if
they did not have a right to manage the firm.Remuneration
Section 24(6) says that no partner is entitled to any salary for taking part in the business
of the partnership. It is very common for partnership agreements to provide that partners
should be paid salaries. If salaries are paid, this is really just a way of distributing the
profits. Salary paid to one partner will obviously reduce the amount of profit available to be
shared by the partners.Admitting a new partner
Section 24(7) provides that unanimous agreement is needed to admit a new partner.
However, the partners might give this consent in advance when signing the partnership
deed. It is not unusual for a partnership deed to state that a relative of one of the partners
may later be introduced as a partner.Disputes about ordinary matters
Section 24(8) makes two provisions. First, it states that the nature of the partnership business
may not be changed without the consent of all of the partners. Second, it states that differ-
ences about ordinary matters connected with the partnership business can be resolved by a
simple majority.