Chapter 5Non-corporate organisations – sole traders and partnershipsthe partners), but if the property belongs to only one
partner the increased value belongs to him alone. Also, a
decrease in value is suffered by the firm if it is partner-
ship property but if it belongs to only one partner all the
loss is his.
2 To the creditors of the firm and the creditors of the
partners individually,since this affects what property is
available to pay their debts if the business fails. If a firm
goes out of business and all the partners are also insol-
vent, then the firm’s creditors can have the firm’s assets
sold to pay their debts before the private creditors of the
partners have access to those assets. Also, private cred-
itors have first right to sell private assets before the firm’s
creditors have access to them.
3 Because dealings with partnership property must
be only for partnership purposes in accordance with
the partnership agreement.If the property is owned
personally by a partner, he can do what he likes with
it unless the firm has some contractual rights over it, as
where the firm is renting it from the partner. Obviously,
the contract must be complied with or an action for
damages would be available to the firm against the partner.
Implied financial terms
These are set out below.
Profits and losses
Section 24 says that unless there is some other agreement
between the partners, all the partners are to share equally
in the capital and profits of the business and must con-
tribute equally towards losses of capital or otherwise.
This is regardless of capital contributed. If those who
have contributed more capital are to get more of the cap-
ital and profit, the partnership agreement must say so.
Interest on capital
Section 24 also says that, unless the partners agree, no
partner is to get interest on the capital he puts into the
firm. In practice, where partners do not make equal con-
tributions of capital it is often agreed that those who
contributed more are to get interest on capital at an
agreed rate per annum. This interest is taken away from
profits before they are distributed to the partners.
Interest on advances (loans)
If a partner helps to finance the firm by making it a loan
on top of contributing capital, then s 24 provides that he
is entitled to 5 per cent per annum on the advance (or
loan) from the date when it was made. There is no rule
that an advance by a partner to the firm carries any
higher interest. This has to be specially provided for.Indemnity
Section 24 also requires the firm to indemnify every
partner who makes payments from his own funds in the
ordinary conduct of the business. Thus, if while a part-
ner is negotiating an insurance for the firm he is told by
the broker that a premium on an existing policy is due
that day and he pays it with his own private cheque, the
firm must pay him back.Implied management powers
Management powers are normally written out in the
partnership agreement. If not, the following rules apply:
1 Under s 24(5) every partner may take part in the
management of the business.This is not surprising
because a partnership is defined as the carrying on of
business ‘in common’. The right is also a fair one because
a partner may find himself saddled with the debts of a
firm, and, if this is so, he should at least have the chance
of managing it.
Any unjustified exclusion of a partner from the man-
agement of the firm will almost certainly enable him to
petition to dissolve the firm on the just and equitable
ground in s 35.
This right to manage concept has also been applied to
small companies which are essentially partnerships in all
but legal form. Cases illustrating this, such as Ebrahimi
v Westbourne Galleries(1972), will be looked at in Chap-
ter 6.
2 Section 24(6) says that a partner is not entitled to a
salary.Partners share profits, but if the firm has some
partners who are more active in the business than others
it is usual for the partnership agreement to provide for
a salary for the active partners which is paid in addition
to a share of profit. A further exception is, as we have
seen, the salaried partner where there is an entitlement
to salary to the exclusion of any share of profits.
Apart from that, a partner who has had to work
harder than usual because his fellow partner has failed
to work as he should in the business is not entitled to
an extra amount from the firm’s assets. In the absence
of agreement, the court will not make an award of
remuneration while the firm is a going concern. The125