Illegal Partnerships

Partnership can be illegal because the business is intrinsically illegal, as in Foster v. Driscoll [1929], where the shipping of alcohol into the USA during prohibition was contrary to the laws of a friendly foreign state; or because the business is carred on illegally.

A partnership is an illegal association if the number of partners exceeds the legal maximum, which is 20 for trading partnerships. Solicitors, accountants and stockbrokers are not subject to any limitation and many professional firms have been exempt by statutory instrument including patent agents, surveyors, auctioneers, valuers, estate agents, land agents, actuaries, consulting enginrees, building designers and loss adjusters.

The Relations of Partners to One Another

The terms of any partnership agreement will determine the relationship between the partners in priority over any contradictory provision in the Partnership Act 1890. However, where the agreement is incomplete, the Act applies.

The terms of the partnership can be changed expressly or by implication; so that where a firm operates for a number of years in contradiction to the express provisions of the agreement, the agreement will be varied by the practice. In Pilling v. Pilling (1865), a father entered into partnership with his two sons. The articles provided inter alia that the father’s capital, a mill and machinery, should not be brought into the partnership and that he should receive 4 per cent interest per annum on his capital before profits were calculated. During ten years each partner was credited with interest on capital. The court held that this was evidence of a new agreement and the mill and machinery were partnership property to be shared between the partners on dissolution.

Partnership Property

Partnership property must be held and applied by the partners exclusively for the purposes of the partnership and in accordance with the partnership agreement and includes property original by brought in and property acquired on account of the firm or for the purposes and in the course of the partnership business.

Failing agreement, ownership is established by the Act which provides that there is no presumption that property was brought into the partnership, but all property bought with the firm’s money is deemed partnership property. In Miles v. Clarke [1953], the plaintiff, a freelance photographer, joined the defendant as a partner in an existing photography business. The agreement merely related to sharing the profits equally and for payment of a salary to the plaintiff. On winding up the business, the plaintiff claimed a share of the assets, including premises leased by the defendant and other equipment which he had installed. The court held that the lease and other equipment belonged to Clarke, and Miles retained the value of his personal goodwill. The stock-in-trade and other consumable items purchased by the firm constituted the partnership assets.

A writ of execution shall not issue against partnership property except on a judgement against the firm: Peake v. Carter [1916].