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Partnership 345

partners are personally insolvent, and so cannot pay their share, the other partners will
take over liability to pay the insolvent partners’ share. Partners may be made bankrupt if
they cannot pay their share. Creditors of the firm can apply to the court to have a firm
wound up.

Example

In firm PQR the three partners, P, Q and R, share profits equally. The firm is wound up and

the assets realised amount to £20,000. Outside creditors are owed £95,000. The £20,000 is

used to pay the creditors and each partner must personally contribute another £25,000

(because profits were to be shared equally).

If partner P was insolvent, and could contribute nothing, Q and R would each have to

contribute £37,500. If both P and Q were insolvent, and could contribute nothing, R would

have to pay all £75,000. If R could not do this, but could contribute only £20,000, the

£40,000 raised would be divided amongst the creditors, each creditor being paid the same

percentage of what he was owed. Each insolvent partner could be made bankrupt if he had

not paid all that he was meant to pay.

Suing a partnership

It is possible to sue a partnership in the firm’s name. This is merely a rule of convenience
and does not detract from the principle that a partnership has no legal personality of its
own. A writ can be served on any of the partners or it can be sent to the firm’s principal
place of business.

Limited partners

It is not possible for all of the partners in a firm to have limited liability in the same way that
all the shareholders in a limited company have limited liability.
It is, however, possible for one or more of the partners to have limited liability under the
Limited Partnerships Act 1907. However, there must always be at least one general partner
who has unlimited liability.
Every limited partnership must register with the Registrar of Companies, giving the
following information:

(i) The firm name. As regards firms registered on or after 1 October 2009, the name must
end with the words ‘limited partnership’ or the abbreviation ‘LP’. (Capital letters or
lower case letters may be used, or any combination of the two.)

(ii) The general nature of the business.

(iii) The principal place of business.

(iv) The full name of each of the partners.

(v) The date of commencement and the length of time for which the business is entered into.

(vi) A statement that the partnership is limited, and the description of every limited partner.

(vii) The sum contributed by every limited partner, and whether paid in cash or otherwise.

There must then be two classes of partner in a limited partnership. General partners, who
manage the business and have unlimited liability; and limited partners, who contribute a
certain amount of capital and are not liable beyond this amount. Limited partners are not
allowed to take part in the management of the business and are not agents of the firm.