to any other rights, to receive out of the surplus assets of the partnership, after satisfying the partnership liabilities, any money he may have paid as a premium or contributed as capital, and to stand in the place of the creditors of the firm for any payments made by him in respect of the partnership liabilities.
If a partner ceases to be a member of a firm, and his former partners continue to carry on business with the partnership assets without any final settlement of accounts, he, or, if he be dead, his estate, is, in the absence of agreement, entitled to such part of the subsequent profits as can be attributed to the use of his share of the partnership assets, or, if he or his representatives prefer it, to interest at 5% on the amount of his share. If his former partners have by agreement an option to purchase his share, and exercise the option and comply with its terms, he is not entitled to any further or other share in profits than that given him by the agreement. If, however, his former partners, assuming to exercise such an option, do not comply with its terms, they are liable to account for subsequent profits or interest to the extent mentioned above. Subject to any agreement between the partners, the amount due from the surviving or continuing partners to an outgoing partner, or the representatives of a deceased partner, in respect of his share in the partnership, is a debt accruing at the date of the dissolution or death.
In the absence of any special agreement on a final settlement of accounts between partners, losses (including losses of capital) are paid first out of profits, next out of capital, and lastly by the partners in the proportions in which they share profits. The assets of the firm, including all sums contributed to make up losses of capital, are applied in paying the debts and liabilities of the firm to persons who are not partners; then in paying to each partner rateably what is due from the firm to him, first for advances and next in respect of capital; and the ultimate residue (if any) is divisible among the partners in the proportion in which profits are divisible.
Limited Partnerships.—In the law of partnership as set out above, the Limited Partnership Act 1907 introduced a considerable innovation. By that act power was given to form limited partnerships, like the French société en commandite—that is, a partnership consisting not only of general partners, but of others whose liability is limited to the amount contributed to the concern. Such a limited partnership must not consist, in the case of a partnership carrying on the business of banking, of more than ten persons, and in the case of any other partnership of more than twenty persons. There must be one or more persons called general partners who are liable for all the debts and obligations of the firm, and limited partners, who on entering into partnership contribute a certain sum or property valued at a stated amount, beyond which they are not Hable. Limited partners cannot withdraw or receive back any of their contributions; any withdrawal brings liability for the debts and obligations of the firm up to the amount withdrawn. A body corporate may be a limited partner. No limited partner can take part in the management of a partnership business; if he does so he becomes liable in the same way as a general partner, but he can at all times inspect the books of the firm and examine into the state and prospects of the business. Every limited partnership must be registered with the registrar of joint stock companies, and the following particulars must be given: (a) the firm name; (b) the general nature of the business; (c) the principal place of business; (d) the full name of each of the partners; (e) the term, if any, for which the partnership is entered into and the date of its commencement; (f) a statement that the partnership is limited, and the description of every limited partner as such; (g) the sum contributed by each limited partner, and whether paid in cash or how otherwise. If any change occurs in these particulars, a statement signed by the firm and specifying the nature of the change, must be sent within seven days to the registrar. An advertisement must also be inserted in the gazette of any arrangement by which a general partner becomes a limited partner or under
which the share of a limited partner is assigned. Any person making a false return for the purpose of registration commits a misdemeanour and is liable to imprisonment with hard labour for a term not exceeding two years. The law of private partnership applies to limited partners except where it is inconsistent with the express provisions of the Limited Partnership Act.
See Sir Nathaniel [Lord] Lindley, A Treatise on the Law of Partnership (7th ed., London, 1905); Sir Frederick Pollock, A Digest of the Law of Partnership, incorporating the Partnership Act 1890 (8tn ed., London, 1905); also article on “Partnership” in the Encyclopaedia of the Laws of England.
Scots Law.—The law of Scotland as to partnership agrees in the main with the law of England. The principal difference is that Scots law recognizes the firm as an entity distinct from the individuals composing it. The firm of the company is either proper or descriptive. A proper or personal firm is a firm designated by the name of one or more of the partners.[1] A descriptive firm does not introduce the name of any of the partners. The former may sue and be sued under the company name; the latter only with the addition of the names of three at least (if there are so many) of the partners. A consequence of this view of the company as a separate person is that an action cannot be maintained against a partner personally without application to the company in the first instance, the individual partners being in the position of cautioners for the company rather than of principal debtors. The provisions of the Mercantile Law Amendment Act 1856 (19 & 20 Vict. c. 60, § 8), do not affect the case of partners. But, though the company must first be discussed, diligence must necessarily be directed against the individual partners. Heritable property cannot be held in the name of a firm; it can only stand in the name of individual partners. Notice of the retirement of even a dormant partner is necessary. The law of Scotland draws a distinction between joint adventure and partnership. Joint adventure or joint trade is a partnership confined to a particular adventure or speculation, in which the partners, whether latent or unknown, use no firm or social name, and incur no responsibility beyond the limits of the adventure. In the rules applicable to cases of insolvency and bankruptcy of a company and partners, Scots law differs in several respects from English. Thus a company can be made bankrupt without the partners being made so as individuals. And, when both company and partners are bankrupt, the company creditors are entitled to rank on the separate estates of the partners for the balance of their debts equally with the separate creditors. But in sequestration, by the Bankruptcy Scotland Act 1856, § 66, the creditor of a company, in claiming upon the sequestrated estate of a partner, must deduct from the amount of his claim the value of his right to draw payment from the company's funds, and he is ranked as creditor only for the balance. (See Erskine's Inst. bk. iii. tit. iii.; Bell’s Comm. ii. 500–562; Bell’s Principles, §§ 350–403.)
United States.—In the United States the English common law is the basis of the law. Most states have, however, their own special legislation on the subject. The law in the United States permits the existence of limited partnerships, corresponding to the sociétes en commandite established in France by the ordinance of 1673, and those legalized in England under the act of 1907 (see above). The State of New York was the first to introduce this kind of partnership by legislative enactment. The provisions of the New York Act have been followed by most of the other states. In many states there can be no limited partnerships in banking and insurance. In this form of partnership one or more persons responsible in solido are associated with one or more dormant partners liable only to the extent of the funds supplied by them. In Louisiana such partnerships are called partnerships in commendam (Civil Code, art. 2810).
- ↑ In France, it is to be noted, the style of a firm must contain no names other than those of actual partners. In Germany it must, upon the first constitution of the firm, contain the name of at least one actual partner, and must not contain the name of any one who is not a partner; when once established the style of the firm may be continued notwithstanding changes.
