Partnerships set for identity revolution

By Jeremy Fleming

Partnership law that has lasted more than a century - and been the bedrock of legal practice - will be radically reformed if Law Commission proposals published this week are adopted.

For the first time, partnerships would have their own legal personality.

The reforms would also narrow the difference between normal partnerships and limited liability partnerships, which are set to be introduced next year.

The proposals focus on three specific problems with the existing law under the Partnership Act, which has remained largely intact since its introduction in 1890: the problem of partnerships not being consistent entities - the departure of a partner leads to a new partnership being formed under existing law; the unnecessary dissolution of partnerships when partners leave; and the mechanism for winding-up partnerships where the partners are unable to co-operate.

The most important proposal would see the introduction of separate legal identities for partnerships.

This would pave the way for firms to own property, enter contracts and continue as entities notwithstanding changes in their membership.

Options offered by the report include the Scottish system, in which legal personality is imposed on firms by default, or to have a system where personality is dependant on registration by firms.

The report proposes that outgoing partners should not trigger an automatic dissolution of firms; instead, the ongoing partnership would be deemed indebted to the outgoing partner.To avoid squabbling on dissolutions, the report recommends a new system for winding-up dissolved partnerships under court supervision.

Although legal personality would give partnerships primary liability to third parties, the report recommends that partners should continue to be joint and severally liable.

It also recommends that duties of good faith among partners should be contained in statute.Welcoming the report, Richard Turnor, a partner at City giant Allen & Overy and vice-chairman of the Association of Partnership Practitioners, said the problems addressed by the Commission were similar to those the government is considering in relation to regulations for the Limited Liability Partnerships (LLPs) Act 2000, which should be introduced next year.

He welcomed a 'reduction of the differences between LLPs and partnerships'.Partnership law specialist Tony Sacker of Kingsley Napley, chairman of the City of London Law Society, also welcomed the report.

He said the introduction of legal personality would make litigation against partnerships much easier, avoiding the question of 'working out who the hell you have to sue'.