BLP - Partnership Liabilities

A partner who acting within the authority granted to him (s5 PA1890):

• Will bind his fellow partners and
• Make any debts so incurred by him partnership rather than personal debts (thus also binding the other partners).

In contract if a partner acts outside his authority then any debts will be his alone.

Liability of partners for partnership debts

Each partner is both jointly and severally liable to outsiders for any act or omission committed by any of the partners/employees in carrying on the partnership (s9-12 PA 1890). A third party has the option to sue:

1. The partnership (meaning each partner is liable).
2. All the partners in their own names.
3. Any one or more of the partners in their own name.

For the full amount of his loss, depending on which the 3^rd party believes to be the most successful course of action. Allowing the 3^rd party to cherry pick the most affluent or easily accessible partner and pursue him.

Liability of new and retiring partners

Under s17(1) of PA 1890: “A person who is admitted as a partner into an existing firm does not thereby become liable to the creditors of the firm for anything done before he became a partner.” Unless the new partner enters into an agreement to that effect.

Under s17(2) “A partner who retires from a firm does not thereby cease to be liable for partnership debts or obligations incurred before his retirement.”

Unless

17 (3) “A retiring partner may be discharged from any existing liabilities by an agreement to that effect between himself and the members of the firm and the creditors”.

A retiring partner could also request his fellow partners (and creditor if possible) indemnify him against any historic debts unsettled at the date of his retirement. However whether or not such an indemnity is granted and the terms it sets out will depend on the strength of the outgoing partners bargaining position.

ALTHOUGH a partner has no liability for debts incurred after he ceases to be a partner (s17(2) PA 1890) this can be overturned. And thus he must be careful that they do not:

• Allow themselves to be held out (s14 PA) as still being a partner or
• Permit 3^rd parties to continue in the belief they are still partners (s36 PA).

This can be done by ensuring his name is removed from all partnerships documents. As well as under s36 PA give notice both generally to the world at large through an advertisement in the Gazette. Allowing a retiring partner to escape liability for future debts. And if possible under s36 (1) write to the firms actual clients notifying them of his retirement.