Partnership Law Bill

  • enacted

Partnership Law Bill

Government Bill

143—1

Explanatory note

General policy statement

This is a Bill to re-enact, in an up-to-date and accessible form, the Partnership Act 1908 the (1908 Act).

The Bill is a revision Bill prepared under subpart 3 of Part 2 of the Legislation Act 2012.

The revision powers are set out in section 31 of the Legislation Act 2012. In summary, a revision Bill may—

  • revise the whole or part of 1 or more Acts, and for that purpose may combine or divide Acts or parts of Acts:

  • omit redundant and spent provisions:

  • renumber and rearrange provisions from the Acts revised:

  • make changes in language, format, and punctuation to achieve a clear, consistent, gender-neutral, and modern style of expression, to achieve consistency with current drafting style and format, and generally to better express the spirit and meaning of the law:

  • include new or additional purpose provisions, outline or overview provisions, examples, diagrams, graphics, flowcharts, readers’ notes, lists of defined terms, and other similar devices to aid accessibility and readability:

  • correct typographical, punctuation, and grammatical errors and other similar errors:

  • make minor amendments to clarify Parliament’s intent, or reconcile inconsistencies between provisions:

  • make consequential amendments to other enactments:

  • include any necessary repeals, savings, and transitional provisions.

However, a revision Bill must not change the effect of the law, except as authorised by section 31(2)(i) or (j) of the Legislation Act 2012 (minor amendments to clarify Parliament’s intent or reconcile inconsistencies or to update monetary amounts).

Accordingly, this Bill does not make any substantive policy changes.

A number of relatively minor inconsistencies, anomalies, discrepancies, and omissions were identified in the course of the preparation of this revision Bill. The following sets out, in general terms, the kinds of matters that were identified and how they have been remedied:

  • various provisions of the 1908 Act refer to “retirement”. This has been interpreted to include partners who have been expelled or “compulsorily retired” under the terms of the partnership agreement. References in the 1908 Act to a “partner who retires” (and similar references) have been replaced with references to leaving the firm (in combination with a definition of leaves in clause 7(2)):

  • section 4(2) of the 1908 Act refers to certain entities that are not partnerships. The language used has been updated by—

    • omitting an obsolete reference to “joint-stock, trading, or mining companies”; and

    • expressly referring to limited partnerships for clarity; and

    • referring to a body corporate rather than a company:

  • some provisions of the 1908 Act contain inconsistent terms and expressions. For example, some provisions refer to “a portion of the profits made in the business” while other provisions refer to “a share of the profits of the business”. A second example is provisions that refer to a “partnership agreement” while other provisions refer to a “partnership contract”. A third example is provisions that refer to a “partnership business” while other provisions refer to the “business of the firm” or just the “business”. The wording of these provisions has been aligned for consistency:

  • section 16(b) of the 1908 Act (which relates to the improper employment of trust property) refers only to trust money while the rest of the section refers to trust property. Paragraph (b) has been amended to refer to trust property:

  • section 17 of the 1908 Act refers to the executors’ or administrators’ estate or effects (as opposed to the deceased partner’s estate). For consistency with other provisions, this provision has been amended to just refer to the partner’s estate:

  • section 20 of the 1908 Act (which relates to the liabilities of incoming and outgoing partners) refers to an agreement between the firm and “creditors” plural (which could be misinterpreted as a reference to the creditors as a group). The provision has been amended to clarify that an agreement can be reached with each particular creditor (rather than all creditors acting together):

  • the 1908 Act refers to the “constitution” of a firm or the firm as “constituted”. This could be misconstrued as referring to the governing rules of an entity (similar to the “constitution” of a company). To avoid confusion, the provisions have been amended to refer to “composition” or “composed”:

  • in some places, section 23(3) of the 1908 Act refers to “an estate or interest in any land” while in other places it refers to “land or estate”. Amendments have been made to consistently refer to an estate or interest in land. Section 23(3) also refers to the purchased land being used “in like manner”. This has been clarified by referring to a “similar” manner:

  • section 26(2) of the 1908 Act (which relates to the procedure against partnership property for a partner’s separate judgment debt) refers to the High Court both making orders and giving directions. However, section 26(2A) refers only to the District Court making orders. This has been extended to allow the District Court to give directions:

  • section 27(i) of the 1908 Act contains an archaic reference to “books”. The provision relates to each partner’s right to have access to and to inspect the partnership books. This has been replaced with a reference to records. The provision also requires the “books” to be kept at the place of business of the partnership. This does not reflect technological changes (for example, keeping records “in the cloud”). To take into account these changes, the provision has been amended to require the records to be reasonably available at the place of business of the partnership:

  • archaic terminology has been updated (for example, “thereto”, “therein”, “thereby”, and “thereof”). In addition, the reference to “servant” in section 5(c)(ii) of the 1908 Act has been updated to “employee” in clause 15(1)(b):

  • section 38(a) of the 1908 Act allows a court to dissolve a partnership if a partner is found to be mentally disordered by inquisition or is shown to the satisfaction of the court to be of permanently unsound mind. The terminology has been updated to align with the wording in section 14(1)(a) of the Senior Courts Act 2016. In addition, the provision allows a partner’s “committee” to apply for an order. Section 129(7) of the Mental Health Act 1969 provided that references to a committee may be references to a manager appointed under Part 7 of that Act. Section 113 of the Protection of Personal and Property Rights Act 1988 in turn refers to references to Part 7 being treated as references to that Act. In this context, a reference to a manager appointed under the Protection of Personal and Property Rights Act 1988 has replaced the reference to a committee.

The Justice Committee is nominated for the purposes of Standing Order 271(3).

Clause by clause analysis

Clause 1 is the Title clause.

Clause 2 provides for the Bill to come into force 6 months after enactment.

Part 1Purpose, overview, and other preliminary provisions

Clause 3 states that the purpose of the Bill is to re-enact the Partnership Act 1908 in an up-to-date and accessible form.

Clause 4 states that the Bill is a revision Act for the purposes of section 35 of the Legislation Act 2012. Section 35 provides that revision Acts are not intended to change the effect of the law (except to the extent expressly indicated).

Clause 5 is an overview of the Bill.

Clause 6 provides for the transitional, savings, and related provisions set out in Schedule 1.

Clause 7 defines certain terms used in the Bill.

Part 2Nature of partnership

Meaning of partnership and firm name

Clause 8 defines a partnership as the relationship that exists between persons who carry on a business in common with a view to profit.

Clause 9 refers to entities that are not partnerships (including companies, limited partnerships, and other bodies corporate).

Clause 10 provides that partners are collectively called a firm.

Determining whether partnership exists

Clauses 11 to 15 set out rules for determining whether a partnership exists, including providing that—

  • co-ownership of property does not by itself create a partnership (clause 12):

  • sharing gross returns does not by itself create a partnership (clause 13):

  • receiving a share of profits is presumptive evidence that a person is a partner (clause 14). However, receiving certain profits or payments does not by itself make a person a partner in certain circumstances (clause 15).

Clause 16 sets out ancillary rules relating to 2 situations referred to in clause 15.

Part 3Relationship of partners to third persons and to each other

Subpart 1—Relationship of partners to third persons

Clause 17 provides that each partner is an agent of the other partners for the purpose of the partnership.

Clause 18 provides for the power of each partner to bind the firm.

Clause 19 refers to where the partners agree on restrictions on a partner’s power to bind the firm. If the partner breaches the agreement, the firm is not bound if the person dealing with the partner has notice of the agreement.

Clause 20 provides for partners to be bound by acts done or instruments executed on behalf of the firm.

Clause 21 provides that the firm may not be bound if a partner pledges the credit of the firm for a private purpose.

Clause 22 provides for partners to be jointly liable for the firm’s debts.

Clause 23 deals with the firm’s liability for a partner’s wrongful acts or omissions. This applies when the partner is acting in the ordinary course of the business of the firm or with the authority of the other partners.

Clause 24 deals with the firm’s liability if a partner misapplies money or property.

Clause 25 states that the liability of the partners for those wrongful acts or omissions is joint and several.

Clause 26 provides that if a partner improperly uses trust property in the partnership, the other partners are not liable (unless the other partner has notice of a breach of trust).

Clause 27 provides that a person may be liable as a partner if they represent themselves as being a partner and another person relies on the representation when giving credit to the firm.

Clause 28 provides that the continued use of a firm name after a partner’s death does not make the partner’s estate liable for any partnership debts incurred after that death.

Clause 29 provides for when a partner’s admission or representation can be used as evidence against the firm.

Clause 30 sets out when notice to a partner operates as notice to the firm.

Clauses 31 and 32 set out the liability of incoming and outgoing partners.

Clause 33 provides that if a person deals with a firm after a partner leaves, the person may treat all apparent members of the firm as still being partners until the person has notice of the change.

Clause 34 provides for guarantees to be revoked by the change in the composition of a firm.

Subpart 2—Relationship of partners to one another

Clause 35 allows the partners’ rights and duties to be varied by consent.

Clause 36 requires partnership property to be held and applied exclusively for the partnership’s purposes and in accordance with the partnership agreement.

Clause 37 concerns how partnership land is held for the purposes of the partnership.

Clause 38 provides that where persons are partners with regard to the profits made by the use of land that is not itself partnership land and those profits are used to purchase other land, the new land is also not partnership land (unless the partners agree otherwise).

Clause 39 provides that property bought with partnership money is treated as being bought for the firm.

Clause 40 provides that partnership land is treated as between the partners as personal property and not real property.

Clause 41 prevents a writ of execution from being issued against partnership property except on a judgment against the firm.

Clause 42 allows the High Court and District Court to charge a partner’s interest in the partnership property and profits for their separate judgment debt. Clause 43 allows the other partners to redeem or purchase that interest.

Clauses 44 to 52 provide for default rules about the partners’ interests and duties. These rules are subject to any agreement between the partners.

In summary,—

  • partners share equally in the capital and profits of the partnership and contribute equally to losses (clause 45):

  • the firm must indemnify a partner for payments made, and personal liabilities incurred, by the partner for the firm (clause 46):

  • interest must be paid where a partner contributes more capital than the partner agreed to provide (clause 47):

  • every partner may take part in the management of the business (clause 48):

  • partners are not entitled to remuneration (clause 49):

  • new partners cannot be introduced without the consent of all the partners (clause 50):

  • most decisions about the partnership are made by majority (clause 51):

  • the partners have a right of access to the records (clause 52).

Clause 53 provides that a majority of partners cannot expel a partner unless this power has been expressly given.

Clause 54 requires a partner to give full information about the partnership to the other partners.

Clause 55 requires a partner to account to the other partners for private profits derived from transactions involving the partnership or from the use of the partnership property, name, or business connections.

Clause 56 requires a partner to account for the profits of a competing business.

Clause 57 specifies an assignee’s rights when a partner’s share in the partnership is assigned.

Part 4Financial reporting, dissolution of partnership, and other miscellaneous provisions

Subpart 1—Financial reporting for large partnerships

This subpart imposes financial reporting obligations on large partnerships. A partnership is large if,—

  • as at the balance date of each of the 2 preceding accounting periods, the total assets of the partnership exceed $60 million:

  • in each of the 2 preceding accounting periods, the total revenue of the partnership exceeds $30 million.

See section 45 of the Financial Reporting Act 2013.

The subpart—

  • requires accounting records to be kept (clause 59):

  • requires financial statements to be prepared in accordance with generally accepted accounting practice (clause 60):

  • requires the financial statements to be audited unless the partnership opts out (clauses 61, 62, and 64):

  • imposes offences on each partner relating to breaches of these requirements. The maximum fine for a partner is $50,000 (clause 63).

Clause 65 provides that the requirements do not apply if the partnership has financial reporting duties under the Financial Markets Conduct Act 2013.

Subpart 2—End of partnership

How partnership may end

Clauses 66, 67, and 69 to 73 set out various ways in which a partnership may be dissolved, including—

  • at the end of a partnership’s fixed term (clause 66):

  • by any partner giving notice, in the case of a partnership without a fixed term duration (clause 67):

  • by the death or bankruptcy of a partner (clause 69):

  • if a partner’s interest is charged for a separate debt, when the other partners agree to dissolve the partnership (clause 70):

  • if it is unlawful for the partnership business to be carried on (clause 71):

  • by an order of the court (clauses 72 and 73). An order may be made if, for example, a partner is permanently incapable of performing the partner’s part of the partnership agreement or a partner has wilfully or persistently breached the partnership agreement.

Clause 68 provides that the partners’ rights and duties generally remain the same if the partnership continues after the end of its fixed term.

Dissolving a partnership

Clause 74 allows any partner to give public notice when a partnership is dissolved or a partner leaves the firm.

Clause 75 gives authority to the partners to wind up the affairs of a partnership that is dissolved.

Clause 76 sets out how the partnership property is to be applied when the partnership is dissolved.

Clause 77 allows the court to order a premium to be repaid if a partnership is dissolved before the end of a fixed term.

Clause 78 gives certain rights to a partner who is entitled to rescind a partnership because of the fraud or a misrepresentation of another partner. For example, the partner is entitled to be indemnified by the guilty party for all the debts and liabilities of the firm.

Clauses 79 to 81 set out the rights of the estate of a deceased partner or of an outgoing partner when the partnership is carried on without a final settlement of accounts.

Clauses 82 to 84 provide for the final settling of accounts when the partnership is dissolved.

Subpart 3—Repeal and consequential amendments

This subpart repeals the Partnership Act 1908 and provides for consequential amendments.