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Chapter 6
How a partnership is formed
The partnership agreement
A partnership can be entered into informally; people can merely agree to run a
business together and then do so. Alternatively they may choose to have a
partnership agreement. If they have such an agreement it acts like a contract
between the partners.
The Partnership Act 1890
In addition to any agreement, the Partnership Act 1890 sets out the rights and duties
of the partners and if the provisions of the agreement do not deal with a particular
issue the Partnership Act will apply. These rights and duties can be overruled by any
express agreement already made between the partners.
Limited partnerships under Limited Partnership Act 1907
A limited partnership is a partnership in which the liability of one or more
partners is limited to their capital contribution.
A limited partnership must fulfil the following conditions:
There must be at least one partner with unlimited liability.
The partnership must be registered with the Registrar of
Companies as a limited partnership.
Limited partners may not participate in the management of the
business. If they do, they forfeit their limited liability.
A limited partner has no power to bind the firm to contracts, i.e.
unlike the unlimited partners, he is not an agent of the firm.
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