This essay will attempt to answer the question of whether partnerships in England and Wales should have their own legal personality. In order for us to answer the question correctly, it is first necessary to look at what actually construes a partnership. The Partnership Act of 1890 defines a partnership as ‘The relationship which subsists between persons carrying on a business in common with a view of profit’ (French, 2007). The definition excludes a company or any form thereof and also excludes limited liability partnerships which are a distinct legal entity. It is important to note that the existence of a partnership is a question of fact- a partnership doesn’t require any formalities or written agreements to be made to legally come into existence (Scanlan et al, 2005). What constitutes a partnership can best be judged by breaking the definition down into its fundamental parts: it is a relationship between two or more people (there is no theoretical maximum following the Partnership No 17 regulations 2001 which removed the 20-person limit), who must be carrying on a business (rather than merely working together or intending to), in common (the partners should be recognizable as such) with a view towards profit (distinguishing partnerships from clubs, societies and charities) – Macintyre, 2005.
One of the vagaries of English partnership law is that a partnership, or firm, is an unincorporated association, i.e. an organisation without any distinct legal personality from its members (Adams 2008). This entails that should one of the partners leave the partnership, whether by serving notice or through other reasons such as death, the partnership ceases to exist as the original relationship has ended. This is what sets an English partnership apart from those in other countries such as those in the EU or even Scotland. What this means for an English partnership is that it cannot hold property or enter contracts; being non-existent as a legal persona it cannot acquire rights and incur obligations (DTI, 2004).
These issues and others arising from the partnership’s lack of legal personality have been brought time and again to the attention of the country’s legal system. With this mind, proposals were introduced in 2000 and 2003 (consultation papers 159 and 283 respectively) in order to review the system and issue recommendations for the introduction of a distinct legal personality for partnerships. However opposition from the bar means these proposals remained just that and no changes have been implemented so far (Morse, 2006). The issue continues to be up for debate, however a solution needs to be found considering the importance of partnerships to the economy of the UK...according to the DTI (2004), there were over 568000 partnerships in the UK at the end of 2002. Together, they employed about 2.77 million people and generated a turnover of £137 billion (excluding VAT). With so much at stake, this issue definitely warrants a more critical examination.
Strengths and Weaknesses of the current system
In order for us to ascertain the prudence of giving a separate legal personality to partnerships, we must first analyse the myriad of problems that arise from the said lack of legal personality. It should be noted that most current literature seems inherently biased in its support towards obtaining a legal personality for English partnerships, so arguments against the fact are few. Irrespective of this, we will aim to present a balanced view.
First and foremost, we must address the issue that their lack of a separate legal personality means English partnerships do not enjoy perpetual succession. This is to say that, since a partnership is non-existent without its constituent partners, any change in the membership- whether through one of the original partners leaving; or a new partner joining the firm- would effectively destroy the firm’s identity (Green v Herzog ). A partner leaving a firm effectively means the cessation of the firm’s existence. As per Income Tax Commissioners for the City of London v Gibbs , even if the surviving members of a firm decide to continue their partnership, it means a “new” firm is created (the same applies if a new partner joins). The “old” firm can arrange a contractual agreement between its members and those of the “new” firm that would allow the new firm take over its assets and continue its business. However, Eichelbaum CJ set an important precedent in Hadlee v Commissioners of Inland Revenue  by ruling that even such an advance agreement that the partners will continue their business on the retirement of one of their members does not prevent the partnership which practises the day after this retirement from being a different one to the partnership on the previous day.
Lindley and Banks (2002) state that- unless contractually agreed upon at the start of the partnership agreement- an English partnership is by default a “partnership at will” which makes no provision for the duration of the agreement. The biggest drawback of such an understanding is that it can be dissolved by one of the partners at any time by merely giving notice to the other members. The partnership would then cease to exist.
- Quote paper
- Rahul Massey (Author), 2008, The Issue Of Partnerships and Legal Personality in England and Wales, Munich, GRIN Verlag, https://www.grin.com/document/127896