Solicitors last week welcomed radical proposals to update the existing law on partnership, which was described by the Government’s law reform body as “a throwback to the 19th century”.
The Law Commission last week published a report calling for a new Partnership Act to replace the 1890 legislation. “Many people would be astonished to learn that a firm is automatically dissolved whenever there is a change of partner, or that it cannot own property, but that remains the law in England and Wales, although not in Scotland,” argued the Government’s law reform body. In practice, firms operate as if they were legal entities and are regarded as such by those who deal with them. “The fact that they’re not presently recognised as such by law is a throwback to the 19th century,” the Law Commission continued. “We believe that it is time to end this anomaly.”
The body called for a new Partnership Act under which partnerships would become legal entities able to enter contracts, hold property and not be automatically dissolved on any change of partner.
“There’s been a longstanding oddity in that the Scottish law confers independent legal personality on a partnership, whereas English law doesn’t; and here, technically, there is a dissolution each time a partner leaves or someone joins,” commented Ronnie Fox, president of the Association of Partnerships Practitioners and a partner at Fox Williams. “I think the fact that the same rule will apply in each country will be welcomed.”
Larger partnerships have formal agreements, whereas many small partnerships do not, and the 1890 legislation contains default provisions. According to Fox, a surprisingly large number of small law firms do not provide their own partnership deeds. The Law Commission has adopted a policy of ‘think small first’, which means that its default code would be aimed at making life easier for smaller businesses.
“It’s all good news, but it doesn’t mean that firms don’t need a partnership agreement,” added Fox.