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Partnership Essay

1036 words - 5 pages

Fair Shares what the outgoing Partner can expect
03 July 2006
Problems are posed where, after dissolution, a partnership business is continued by one partner. Such problems are longstanding. Frequently a husband and wife have run a business as partners (often without a Deed of Partnership). Following the breakdown of their marriage, one of them leaves whilst the other continues the business. This frequently raises the issue as to liability for the income earned from the business which is continued by the remaining spouse. As a matter of elementary fairness, it seems unjust that the partner continuing the business should benefit both from having the facility of the business and the income ...view middle of the document...

It was also expressly provided that the net profits derived from the operation of the residential home business was to be divided equally between the partners. Before the Master and subsequently on appeal before Lightman J, it was decided that S's share for the purposes of calculating his entitlement to profit was not to be reduced by the fact of the non-payment of a substantial chunk of his contribution to the purchase of the residential home. There was no dispute as to the fact that he was entitled to an equal share of the capital. The sole issue in the case was whether the partners had equal share to income. By a unanimous decision, the Court of Appeal decided that S's entitlement had to be based on his share of the net partnership assets and not the gross partnership assets. Therefore his indebtedness to G fell to be deducted so that his share was the equivalent of 21/171th of the profits. Below it had been held that they were entitled equally. The court relied substantially upon Section 44 which lays down the rules for distribution of assets on final settlement of accounts. This provides that :- "The assets...shall be plied in the following manner and order : (1) in paying the debts and liabilities of the firm to persons who are no partners therein: (2) in paying to each partner rateably what is him for advance...(3) in paying to each partner rateably was is him in respect of capital: (4) the ultimate residue, if any, shall be divided among

the partners in the proportion in which profits are divisible". It follows, that the calculation of entitlement to profit therefore falls to be carried out notionally as if there has been a final settlement of accounts. In practice, it meant that the entitlement of S to profit was virtually nil. The decision runs contrary to the description of a partner's "share" of the partnership assets...

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