Partnership is the relation which subsists between persons carrying on business in common with a view to profit. Technically it has no reference to the relation between shareholders and a limited company. The law of partnership for the United Kingdom has been placed on a clear and intelligible footing by the Partnership Act, 1890, 53 and 54 Vict. chap. 39, which does not change the law established by decisions, but states it in an authoritative manner. Joint tenancy, or joint property, or sharing gross returns does not by itself make a man a partner. The receipt of a share of net profits is a strong indication of partnership, but it is not conclusive in such cases as a creditor, a servant or agent, the widow or child of a deceased partner, the vendor of the good-will of a business, receiving payment or remuneration by way of a share in net profits. Where the person carrying on the business becomes bankrupt, however, the creditor or vendor who is paid out of profits is postponed to the other creditors. In Scotland the firm is a legal person distinct from the individual partners, but a partner may be charged on a decree against the firm, and on payment of a firm debt is entitled to relief pro rata from the firm and the other partners. In all ordinary transactions each partner, as agent, binds the firm, unless the person dealt with knows that the partner has in fact no authority. The firm is not bound where the partner pledges its credit for a purpose apparently not connected with the business. In England and Ireland the partners are liable jointly, in Scotland severally, for firm debts: in England and Ireland the estate of a deceased partner is subject to prior payment of separate debts. The firm is liable for the misapplication by a partner of property received by the firm, except in the case of property of which the partner is trustee when the other partners have no notice of the trust. Every person who by words or conduct holds himself out as a partner, or permits himself to be so represented by others, is liable to anybody who relied on such representations. But this will not make the executors of a deceased partner liable because the name of the deceased has been used by the firm after his death. The admissions of a partner bind the firm, and notice of any fact to a partner is also notice to the firm, except in the case of a fraud upon the firm. A new partner does not become liable, nor does a retiring partner cease to be liable, to existing creditors. But the consent of creditors to discharge a retiring partner, or to accept the new firm as the only debtor, is easily presumed from a course of commercial dealing. Continuing guarantees or cautionary obligations are revoked as to future transactions by any change in the constitution of the firm which is debtor or creditor in the obligation. Unless the contrary appears, property bought with the money of the firm is held to have been bought on account of the firm. Heritable property bought for the firm is treated as movable between partners. Unless otherwise agreed, all partners are entitled to share equally in profits and capital, and must contribute equally to losses. The firm must indemnify every partner in respect of proper payments made and liabilities undertaken by him. If a partner advances capital beyond his share, he is entitled to interest at 5 per cent. Every partner may take part in management, but no partner is entitled to remuneration for so doing.
No new partner may be introduced without the consent of all the other partners. The majority of partners cannot expel a partner. Every partner has access to the firm books. If no time has been fixed for the duration of the firm, any partner may at any time dissolve it by notice to his copartners. If the partners go on trading after the time fixed for dissolution they are presumed to do so under their former agreement so far as that may be applied to a partnership at will. Every partner must account to the firm for any benefit derived by him from any partnership transaction, or any use of partnership property or business connection. The same rule applies if without consent a partner carries on a separate business competing with the firm. An assignation by a partner to his creditor of a share in the business does not entitle the creditor to inspect books, or to require accounts, or to interfere in management, but merely to receive share of profits, or to receive the value of the share when realised on dissolution. Apart from agreement, partnership is dissolved by the death or bankruptcy of any partner, or by the business becoming unlawful. Further, the court may decree a dissolution (1) where partner is of permanently unsound mind; (2) when partner becomes permanently incapable of performing his duties; (3) when partner's conduct prejudicially affects the carrying on business; (4) when partner persistently breaks the agreement, or so conducts himself that it is not reasonably practicable for the other partners to act with him; (5) when the business can only be carried on at a loss. A person dealing with a firm after change in its constitution is entitled to treat all apparent members of the firm as still partners until he receives notice of the change. A retiring partner, not known to be a partner, is not liable for debts contracted after his retirement. After dissolution the authority of partners to bind the firm continues so far as necessary for a proper winding up—viz. in having the property of the partnership applied to payment of the debts and liabilities of the firm, and the surplus assets applied in payment of what is due to the partners after deducting what is due by the partners to the firm. If after a partner's death or retirement the other partners carry on business without any settlement of accounts, they must account for share of profits or pay interest at 5 per cent. in the option of the outgoing partner or the representatives of deceased partner. An option to purchase, however, is generally given by the contract in such cases.
In Scotland, as already stated, the firm is a distinct persona. Therefore in actions by or against the firm the individual partners need not be named, though in practice one or two of them generally are named. Each partner may also sue the firm; and the firm may be sequestrated without any of the partners being sequestrated.
The law of the United States is based on English common law, but many of the states of the Union have their own special legislation; and, contrary to the practice of Britain, limited partnerships, resembling the French Sociétés en Commandite (see COMMANDITE), are fully recognised. On this subject the New York legislation has been generally followed; the general partners being responsible, the special partners liable only to the extent of the funds put by them into the concern. Creditors cannot directly proceed against the representatives of a deceased partner.
See Sir N. Lindley's Treatise on the Law of Partnership (6th ed. 1891), the great authority; also J. Parsons' Exposition of the Principles of Partnership (1889); F. Pollock's Digest of the Law of Partnership (4th ed. 1888); and, for the United States, Kent's Commentaries (13th ed. 1884), and Story, Law of Partnership (1841). See also the articles COMPANY, CORPORATION.