The Partnership Act 1890 and The Company law - Assignment Example

The Partnership Act 1890 and The Company law 1. The issue in this question requires an analysis as to whether a partner in this case Lindsay be expelled from the partnership. It is important to first consider the Partnership Act 1890 wherein under section 25 it has been clearly stipulated that even though when the majority of partners agree to the fact that a partner should be expelled from the partnership, it cannot be don unless there has been a power which has been conferred to them by virtue of an express agreement between the partners. The important principle had been evaluated in Snow v Milford1 wherein it had been clear that unless an express provision to expel a partner existed in the partnership agreement, such an act could not be undertaken.2 The next element that needs to be considered is that as provided in clause 18 of the partnership agreement wherein two situations have been provided for whereby a partner can be expelled. The first situation is where an act or default which is an obvious breach of duty of a partner whereby he can be expelled. The important aspect of the fact that needs to be construed in respect of the same is that whether the act of Lindsay of not being active in the partnership and not looking into the affairs of the same would be considered as a flagrant breach. It can be seen that this would not in general circumstances be considered to be a flagrant breach of the partner’s duties and therefore the reason cannot be used in respect of this option to expel Lindsay. The next element is that of acting contrary to good faith, which, as seen from the facts would not be the case. Clearly by virtue of the options that have been provided for in the clause, this would not allow for expulsion of Lindsay. However, the other options that are available to the partners is that of non judicial and judicial dissolution. However, the principles of non-judicial dissolution would not be available to the partners. The option of judicial dissolution whereby different options are available can be used. The first method would be where there is conduct which is prejudicial to the business and the partner is found to be guilty by the court thereby granting dissolution under section 35(c). 3Another element is that section 35(d) whereby if there has been a willful or persistent breach of the agreement than it can be challenged in the court and the partnership can be dissolved as done so in Cheeseman v. Price4. Another option is that where the court is of the opinion that there exists a just and equitable ground to dissolve the partnership pursuant to section 35(f) (Harrison v. Tennant)56 Thus the options that are available to Janine and Mary would be that of judicial dissolution or if there had been an express pre-condition within the partnership agreement that time should be given to the running of the business, this could be an effective reason which can be used under the provisions of an express and flagrant breach of the partnership agreement, whereby Lindsay can be expelled from the partnership. In respect of judicial dissolution it is important to mention he repercussion that flow from such an action as the goodwill would be sold and in addition there would be the requirement of return of capital of each of the partner and therefore Lindsay would have to be returned her share of the capital and an appropriate order in respect of the same would be made by the court so as to direct the recovery of the same. Another reason which can be used as a basis to expel Lindsay is the fact that she has been involved in criminal conduct and therefore the partnership would be affected by her actions and therefore she has already failed to perform her duties effectively she could be expelled, however, there remains the possibility of such an act of expulsion being challenged by Lindsay in court and arguing the fact that her actions in no way affected the partnership and her reason for not giving proper time to the partnership were merely on the basis of the fact that she was not in the right phase of mind and her acts/omissions if she would have been involved with decision of the partnership. Would have hindered the progress of the partnership and would not have been beneficial for the partnership or for the partners in their individual capacity. 7This would clearly be found to be a cogent ground for her absence and the courts in this situation would allow for her exemption from attendance from the partnership, however, if an application under the just and equitable ground is made and there are reasons shown by Janine and Mary whereby the partnership has been adversely affected by the inactions and absence of Lindsay, then the court would have no option by to dissolve the partnership and by virtue of the same, the remaining partners can effectively start the partnership between themselves afresh and this would clearly led to the exclusion of Lindsay. Further, by virtue of section 24(5) every partner may take part in the management of the partnership business. Thus this can be raised as a ground for expelling Lindsay and it can be argued that she has not been participating in the management and therefore she has been in breach of the partnership and should be expelled. However, it is important to emphasize on the point that temporary absence from the partnership would generally not be considered as material breach and therefore Lindsay would not be found to be in breach of the section. 8 The all important principle tends to exclude the right of the majority of the partners to expel another partner has been provided for in section 25 wherein it has been specified that the majority of partners cannot expel the other partner unless such a power has been expressly conferred by virtue of an express agreement wherein it has been expressly provided for.9 A final point which can be looked into in respect of the facts is that Lindsay’s fault which has led the firm to compensate Standard Construction Ltd can be used to construe the breach of clause. Even though it would not be covered under the head of good faith, it can be said to be a flagrant breach of the duties of Lindsay whereby the loss was suffered by the firm. Thus by virtue of the loss that has been suffered by the firm Janine and Mary can expel Lindsay whereby no need for judicial dissolution and restructuring of the partnership or formation would be required. 2. The issue in this question requires an analysis of whether Janine and Mary, as partners can sue Lindsay for her acts/omissions whereby the partnership has suffered losses and as a result of the same had to compensate Standard Construction Ltd for the same. By the facts it is unclear that the partnership articles did provide for any individual liability of the partner and so the important advice in respect of the same would be to look at the same and construe as to whether by virtue of the said articles any liability for acts/omissions has been provided for and if so the interpretation that can be accorded to such a clause. On the basis of no information in respect of the partnership articles the Partnership Act 1890 would need to be consulted so as to base an evaluation in respect of the liability of the partner.An important aspect that needs to be considered in respect of this is the fact that by virtue of section 24(5) each and every partner in the firm may take part in the management. Further and in addition the action that the partners are thinking of bringing against Lindsay is where her omissions to fulfil her duties and obligations have led to losses. An important factor which is unclear from the facts is that whether there had been anything that had been stipulated within the partnership agreement whereby duties had been defined or management and obligations for losses had been provided for10. Thus it cannot be clearly ascertained as to whether any action in respect of the partnership agreement can be taken against Lindsay. Another element which needs to be looked into is that has been provided for in section 24 wherein the rules in respect of the interests and duties of partners which are obviously subject to any special agreement have been provided for. Section 24(1) expressly provided for the fact that the partners within the firm would be equal in sharing the capital, profits of the business as well as making effective contribution equally towards the losses which could be of capital or otherwise that has been incurred by the firm. The construction of the clause clearly stipulates that losses in respect of the same would be shared equally between the partners.11 Thus by virtue of the same it is important to point out to the partners that by virtue of the said clause even though there has been loss which has been suffered by the company this would be shared equally between the partners and therefore the contribution towards the loss would be in equal nature and action in respect of the same cannot be brought about by the partners against Lindsay and even if such an action is brought in court it would be in vain. However, if there are special provision that have been effectively been provided for within the partnership agreement, then there can be contribution which has to be made by Lindsay and she would be held liable for the same. 3. The issue in this question requires an analysis of the Partnership Act 1890 and the procedure that is required to block the entry of a new partner coming in. Clearly in respect of the issue the first and foremost question would that of an evaluation of the partnership articles and whether the same provide for a mechanism for induction of a new partner, if so what exactly is the requirement and the number of partners consent that is required. In respect of the facts at hand, the facts do not provide for any such articles and therefore it is presumed that no such clause is existent and therefore the provisions of the Partnership Act 1890 would need to be considered so as to evaluate the position of Janine, Lindsay, Terry and Susan. The provision that deals with the requirements of induction of a new partner have been stipulated under section 24(7) wherein it has been expressly stipulated that no person would be introduced as a partner within the firm without the consent of all the partners that are existing within the partnership.12 By virtue of section 24(7) it is evident that Susan cannot be made a partner of the firm unless consent is sought an expressly given by Janine and Lindsay. Even if one of them gives consent to the same, this would not suffice and Susan would not become a partner. Thus for an effective induction it would be necessary to get approval of both the partners. In respect of Terry being appointed as an office bookkeeper/administrator on a weekly salary it has to be repeated that since there are no express provisions that have been provided for within the facts it is necessary to look into the provisions of the Partnership Act 1890 whereby effective determination of the position can be made. Therefore the provisions of Partnership Act 1890 would be looked into so as to deduce the possibility of hiring him. The relevant provision which deals with such an act is that of section 24(8) wherein it has been provided that any difference which arises in respect of an ordinary matter in respect of the partnership and its business may be determined on the basis of majority decision of the partners, however, there has to be no change in respect of the nature of the business of the partnership, which has to be done with the consent of all the partners that are existent at that point in time.13 By virtue of the aforementioned provision, if Mary, along with Janine or Lindsay agree to hiring of Terry then the provision of section 24(8) would suffice and effective hiring of Terry on the basis of a salary can be made. This would be because of the fact that a majority of the partners have agreed to such hiring and therefore the provisions have been validly followed. However, if both Janine and Lindsay disagree and do not want such a hiring to take place, then clearly it would go to the contrary, as the effective criterion of attaining majority of the partners’ consent would not be present and so Terry could not be hired. The only problem which lies in respect of this would be that the provision provides for the term ‘may’ which does not make it compulsory and therefore if Mary hires Terry without consultation that would be problematic. The problem in respect of this position would be that under section 5 of the Partnership Act 1890 a partner is considered to be an agent of the firm as well as other partners in respect of the purpose of the business of the partnership and so the acts of the partner who indulges into act in order to carry out the usual business of the kind which is carried on by the firm for which he is a member, would bind the firm, unless the partner does not have authority to do the act and the person with whom such a deal is being made is aware that the partner does not have authority or is unaware of him being a partner. Further, section 6 provides that if an act or instrument which relates to the business of the firm and is done/executed in the name of the firm, or in a manner with intent to bind the firm, with a person who is authorized even if he is a partner or not will bind the firm as well as the partners. 14 By virtue of the aforementioned section 5 and 6 it is clear that if Mary enters into a contract for hiring Terry whereby Terry does know that he is the partner and has the authority would create a binding contract which would be effective on both Lindsay and Janine. In addition by virtue of the instrument, if any, section 6 would come into play and would be binding upon Terry, the firm as well as the partners of the firm and thus such a contract would then have to be abided by and thus an action in respect of the same cannot be rectified. References PL DAVIES and LCB GOWER,. Gower and Davies' principles of modern company law [Sweet & Maxwell, London 2008] AJ DIGNAM and JP LOWRY, Company law[Oxford University Press, Oxford 2009] D FRENCH Blackstone's statutes, company law [Oxford University Press, Oxford 2006] BM HANNIGAN Company law [Oxford University Press, Oxford 2009] R KEANE and R KEANE Company law [Haywards Heath, Tottel Pub, West Sussex 2007] A RIDLEY Company law [Hodder & Stoughton, London 2002] Read More