Limited Partnership Act 1907 Flashcards
Why was this Act introduced?
This type of partnership was introduced to make certain people who wanted to invest in a firm but they did not play a part in the active running of the business. This act was set up to facilitate this particular partnership. [Not spending too long on as rare occurence].
The 1890 Act works on ideas of good faith which makes sense in small firms where your partners in the next room and you can supervise what they are doing etc. But if you are part of a firm which has partners all over the world, these ideas of good faith and fiduciary duties are no longer as appropriate. This led to moves to try to limit liability.
The first attempt was the Limited Partnership Act 1907 which applies to both Scotland and England.
But this Act never became very popular - it was enacted around the same time that limited companies were created and the limited liability company proved to be incredibly popular.
What is required to make a limited partnership?
You need a general partner and a limited partner. Limited attribute capital at the time of entering into partnership and are not liable for debts beyond this amount. The general partner has all the risks associated in operating as a partner, limited partner only those risks of contribution on entering into partnership.
How is a limited partnership registered?
Certain information regarding 1907 Partnerships must be registered with the Registrar of Companies - the administrative requirements are heavier than 1890 Partnerships.
NB: General Limited partnerships have to be registered (s.5 1907 Act) AND certain information has to be registered (s.8(A)). If any changes are made or if a general partner becomes a limited partner then this change must also be notified to the register. There is more formality than with a general partnership (??).
Does the Act provide complete liability?
One important thing to note is that this Act does not provide complete liability - it is a mixture of concepts from partnership and from company law.
What is the required the structure of the limited partnership?
Under s 4 of the 1907 Act there must be at least one general partner who has unlimited liability - thus somebody will still be shouldered with all the debts. The other partners are known as limited partners. There must be at least one limited and one general partner.
This structure allows partners (the limited partners) to invest capital in the partnership but not manage or participate in the partnership. Although not widely adopted, this can be very useful in certain areas[ Quite often used in relation to startups which are very risky, financial industry in Edinburgh for example and farms.].
⁃ [See management below for more]
General Partners and Limited Partners. Certain information must be registered with the Registrar of Companies – see ss 5, 8A and 9 of the 1907 Act.
What rules are a limited partnership governed by?
s 7 provides that a limited partnership under the 1907 Act is governed by the same rules as ordinary (1890) partnerships, except where the 1907 Act states otherwise. So the rules above will apply except for this.
How are limited partnerships to be managed?
s 6(1)(a) provides that if the limited partner takes part in management then he loses the limited liability. He loses the protection afforded to him of only being liable for his contribution at the time he entered the partnership.
⁃ a. Any difference as to ordinary matters concerning the partnership are to be decided by a majority of the general partners.
⁃ b. A limited partner may, with the consent of the general partners, assign his share of the partnership. (There is no idea of delectus personae).
⁃ c. A limited partner has no authority to bind the firm.
⁃ d. A person may be introduced as a general partner without the consent of the limited partner.
⁃ e. A limited partner is not entitled to dissolve the partnership by notice.
⁃ f. Dissolution is not caused by death or bankruptcy of the limited partner.[ Not entirely sure what the authority is for these points (is it section 6?)]
[So the limited partners have a very limited role in terms of management etc.]
How is a limited partnership wound up?
Winding up of a limited partnership is to be carried out by the general partners unless a court decrees otherwise. [Clear idea it is for the general partners to deal with the business].
What amount and when may a Limited Partnership partner liable for the firms debts?
NB if a limited partner withdraws his capital contribution then he can become liable to the firms debts up to the level of this contribution.
