Partnership in UK Law

It has often been argued, and was so in this House, that its authority is limited to true deadlock cases. Whether there is deadlock or not, he says, the circumstances "are such that we ought to apply, if necessary, the analogy of the partnership law and to say that this company is now in a state which could not have been contemplated by the parties when the company was formed."

The words are a recognition of the fact that a limited company is more than a mere judicial entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure.

It is these, and analogous, factors which may bring into play the just and equitable clause, and they do so directly, through the force of the words themselves. A company, however small, however domestic, is a company not a partnership or even a quasi-partnership and it is through the just and equitable clause that obligations, common to partnership relations, may come in.

The superimposition of equitable considerations requires something more, which typically may include one, or probably more, of the following elements—(i) an association formed or continued on the basis of a personal relationship, involving mutual confidence—this element will often be found where a pre-existing partnership has been converted into a limited company; (ii) an agreement, or understanding, that all, or some (for there may be "sleeping" members), of the shareholders shall participate in the conduct of the business; (iii) restriction upon the transfer of the members' interest in the company—so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.

What he receives out of the partnership funds falls to be brought into account in ascertaining his share of the profits of the firm except in so far he can demonstrate that it represents a payment to him in reimbursement of sums expended by him on partnership purposes in the carrying on of the partnership business or practice — the example was given in the course of argument of the partner travelling to and staying in Edinburgh on the business of the firm — or a payment entirely collateral made to him otherwise than in his capacity as a partner (as in Heastie v. Veitch & Co.

Victory Partnership expended capital of $3,250,000.00 for the purpose of producing and exploiting a commercial film. The production and exploitation of a film is a trading activity. The expenditure of capital for the purpose of producing and exploiting a commercial film is a trading purpose. The section is not concerned with the purpose of the transaction but with the purpose of the expenditure.

That is because in law an individual cannot be an employee of himself. Nor can a partner in a partnership be an employee of the partnership, because it is equally not possible for an individual to be an employee of himself and his co-partners (see Cowell v. Quilter Goodison Co Ltd and Q.G. Management Services Ltd [1989] IRLR 392). The statutory hypothesis which the subsection requires in order to answer that question is that A and the other members of the LLP 'were partners in a partnership'.