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Legal > Business & Commercial Law

Partnerships:

Overview FAQs Articles Locations

A group of persons setting up a commercial enterprise may adopt the legal form of a partnership. A partnership like a company is a type of association but narrower because it can only be for commercial purposes. According to corporate law the definition of "partnership" is the relation which subsists between persons carrying on a business in common with a view of profit. The members of a partnership can be natural persons or artificial legal persons provided they have legal capacity to make a partnership agreement.  Obtaining proper legal advice from a Commercial Lawyer may be greatly beneficial if you are involved in a partnership.

Incorporation, the most significant feature of any company, whether limited or unlimited, means that the law treats it as a type of legal person. It is a legal entity and has a separate legal personality attached to this. However, a partnership in Australia has no legal existence apart from the members of the partnership. In a partnership, the partners may be liable jointly or severally for the debts of the partnership. In a civil suit, it may be that the courts, in winding up the affairs of a partnership, may refer to the partnership firm as the debtor or creditor of its members. However this is merely a formality to determine the net balance to be paid to or by each partner on the settlement of accounts between them. Thus it is only a matter of procedural convenience and does not alter the fact that each partner would be directly liable to satisfy any judgment in the action. In addition, under the rules of procedure made in respect of various courts, partners may be sued in the name of the firm in which the partners alleged to be liable were partners when the cause of action accrued. Proper legal advice in from a Commercial Lawyer may be of great assistance in explaining all the aspects of a partnership.

Thus a partnership is to be completely contrasted with a company because of the partnership's lack of legal personality. This means property of the partnership is owned by the partners personally but members of a company do not own the property of the company, it is owned by the company as a legal entity. On a change of members in a company no transfer of its assets is needed. Creditors of the partnership are creditors of the partners personally and can enforce the judgment against partners personally in contrast to creditor of a company can enforce a judgment only against the company. In general, creditors can make the members liable to contribute towards payment of debts (if at all) only by having the company put into liquidation. Each partner in a partnership is an agent of the other partners to make contracts on their behalf for the purposes of the partnership's business. A member of a company, as such, cannot make the company or fellow-members liable. Partners personally are jointly and severally liable for torts committed by the partners or employees of the partnership. Members of companies are not, as such, liable for torts that can be committed by the company. Partners cannot contract with the partnership yet a member of a company can make a contract with the company.  A company has a status as an artificial legal person capable of being recognised in places where it operates outside its state or territory of incorporation. Under the rules of conflict of laws, the law of the place of a company's formation will be given effect on many matters as part of the law of persons. A partnership for the purposes of the conflict of laws is liable to be treated as a type of contract and the conflict rules as to persons may not be attracted. In a general partnership no partner enjoys limited liability in respect of the partnership liabilities. Sound legal advice from a skilled Commercial Lawyer may be advantageous to ensure that any partnership agreement is properly drafted.

In addition, a partnership is to be contrasted with a company in regards to conduct of business. A company’s conduct is attributed only to the company rather than its members, directors or management. Directors direct, and management manages a company's affairs, but they do so as agents of the artificial legal entity while in a partnership and the position is that the individual members of the partnership carry on business in common. Directors and managers are not liable on contracts they make for the company unless they assume a special duty to a creditor by agreement, representation or are subjected to liability by exceptional provisions of the Corporations Act. Professional legal advice in from a Commercial Lawyer may be advantageous to understand the rights, obligations and liabilities involved in a partnership.

Whether any partner enjoys limited liability depends on the distinction between a general partnership and a limited partnership. A limited partnership is only an ordinary partnership with some added features. In a limited partnership there are two categories of partners: general partners who manage the business and limited partners who take no part in management. General partners are subject to unlimited liability whereas limited partners are liable only to the extent of the capital they contribute to the partnership. However, a limited partner will lose the benefit of the limitation of liability by taking part in management. Where limited companies are the general partners, the whole of the companies' funds are at risk but, of course, members of those companies will enjoy limited liability. Unlike general partnerships, which may be formed without any need for registration, limited partnerships are required to be registered. A company, if it is a limited liability company, is similar to a limited partnership in that it can provide limitation of liability for members. However, in current company law there is no direct analogue of the limited partnership.

If you would like further information or wish to discuss your partnership matter with us please do not hesitate to contact us by telephone on (02) 9233 4048 or by email to info@navado.com.au. Please peruse our "Locations" tab to see our other branch locations.

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This webpage (and any material or wording appearing on this webpage) is provided for general information purposes only and does not constitute any Legal Advice. It does not take into account your objectives, your instructions or all of the relevant facts and/or circumstances. Navado accepts no responsibility to any person who relies on the information provided on this website. We further refer you to our Disclaimer.

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