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Joining forces

There are any number of ways in which persons may engage in business activities such as under one’s own name, by the creation of a company or engaging in a partnership.

The Partnership Act, Cap. 313 has a very general definition of the term partnership and describes it as “the relation which subsists between persons carrying on a business in common with a view to profit”.

This definition can really describes almost any other business enterprise, but the act goes on to particularise the defining characteristics of a partnership.

A partnership or a firm is not a separate legal entity. It is a grouping of two or more individuals who have contracted with one another for some common business goal. Partnership is essentially based on the law of agency. Section 7 provides that each partner acts as an agent of the firm and his other partners in the conduct of any partnership business.

The acts of any partner pursuing the business of the firm are considered to bind the firm and the other partners unless there was no authority to transact such business and the lack of authority was either known or believed. It is a question of fact and law based on examination of the relationship between the parties as to whether there is in fact a partnership in existence.

As a result of the agent/principal relationship between partners, each partner is jointly (as a group) and severally (individually) liable for all debts and other liabilities of the firm incurred during the period when he was a partner. By way of example, if one partner of a firm misappropriates clients’ funds or property then the firm is generally liable to compensate that client for the loss. This latter statement however does not apply to property in respect of which only one partner is a trustee.

The somewhat fluid nature of a partnership allows for the incurring of liability by a person who may not necessarily be a partner but who holds himself out (represents) that he is a partner. Section 16(1) of the act provides that “any person who by word spoken or written or by conduct represents himself, or who knowingly suffers himself to be represented as a partner in a particular firm, is liable as a partner to anyone who has on the faith of any such representation given credit to the firm” whether or not the representation has been communicated to the person giving the credit.

Persons can sometimes engage in loose business arrangements only realising the havoc which could be wreaked in such circumstances when problems arise. To save such persons from themselves, section 26 of the act sets out a number of default clauses to provide definition to partnership relations in the absence of a formal written agreement between the parties.

Such default provisions include entitlement to participate in the management of the business, unanimous consent for the addition of a new partner; majority voting in relation to ordinary matters; equal distribution of profits and so on.

Anti-competition clauses are usually to be found in business contracts and it should be self-explanatory why a person engaged in business with others should not be allowed to compete directly with that business. In the event that it is not obvious, sections 31 and 32 of the act provide that in the absence of the consent of all other partners any partner so competing with the business of the firm must “account for and pay over to the firm all profits made by him in that business”. That certainly removes any incentive for dishonesty.

A partnership is dissolved at the expiration of any agreed period, the death or bankruptcy of any of the partners or on application to the court in certain circumstances such as the mental incapacity of one of the partners.

There are certain professions such as the legal fraternity which are not allowed to practise law by means of an incorporated company and are limited to engaging in partnership arrangements. Where, however, there is an alternative and there is any attendant risk to the conduct of the business which could lead to the exposure of the personal assets of any of the individuals involved one would advise the incorporation of a limited liability company.

Happy Independence to all in Beautiful Barbados, still the “gem of the Caribbean Sea”.

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