Compared to all the attention that has been given to the company law review and the arrival of limited liability partnerships, scant notice has been given to the project currently being undertaken jointly by the Law Commissions of England and Scotland to reform the law on partnership – a project that may end up having a more direct impact on accountants than either of the other two. The Law Commissions’ initial review of the 1890 Partnership Act concluded that, for the most part, it remains relevant to today’s circumstances. The commissions have, however, identified three problems which they propose to rectify. First, the absence in an English partnership of separate legal personality causes problems in areas such as the ownership of property and the continuance of rights and obligations. It is proposed that English and Scottish partnerships should each acquire separate legal personalities, although each firm would be free to decide whether this should continue after specified events such as changes in personnel.
Secondly, the technical termination of a partnership on each departure and arrival of a partner is an anachronism and causes needless confusion.
The commissions are proposing that there be a default rule to the effect that, provided at least two partners remain in the firm, the partnership is not dissolved on a change in personnel.
Thirdly, the commissions claim that the current rules on the winding up of a dissolved partnership are unsatisfactory; they propose the introduction of a court-appointed partnership liquidator to take responsibility for dealing with the property and rights of a dissolved firm.
One of the key issues to be resolved concerns the liability of an incoming partner in a partnership with continuing legal personality. It is likely that the new partner’s capital contribution will be made available to meet the firm’s prior and continuing debts, although express provision would be made to protect his personal assets from prior claims. Another key issue concerns whether or not individual partners should owe a duty of care to each other.
The vast majority of audit firms still seem comfortable with the traditional partnership, which has proved to be a flexible mechanism for managing the relationship between a group of professional people. This simplicity and flexibility needs to be retained in any revised version of the Partnership Act.