In April this year, we bid farewell to one of our oldest Acts of Parliament, the Partnership Act 1908. You won’t have seen any media about the demise of this 111 year-old law. This is because its replacement, the Partnership Law Act 2019, says everything the old law says but in more modern language. It was hard enough for lawyers to decipher the dense wording of the 1908 Act, let alone everyday Kiwis without legal training. The intention of the new Act is to make things easier for everyone involved. But what is a partnership?
There are many different ways of conducting business in New Zealand: sole proprietors, trusts, companies, and partnerships are just some of the options available. So what exactly is a partnership? A partnership is not a legal entity like a company. It does not hold property separately from its owners like a company, and partners are not protected by limited liability.
A partnership describes a relationship between a group of people who are carrying on business together with the intention to make some profit. That group of people is called a firm. Because a partnership has such a broad definition, people can sometimes find themselves in a partnership without realising it. Without a partnership agreement in place, this can lead to unintended consequences.
The Act sets out a number of default rules which apply to partnerships. For example, acts of one partner can legally bind other partners in the firm if they are done for the purpose of the business. An unknowing partner can sometimes find themselves liable for the misdeeds of others. Partners, by default, are also entitled to share equally in the capital and profit of the business, even if their contributions are unequal.
If you are planning on entering into any business with someone, even for a one-off project, you should be asking yourself ‘could this be a partnership?’ If so, a partnership agreement or a no-partnership agreement is almost always called for and you should consider seeking legal advice.
If you would like to know more about partnerships, you should consult a legal professional with experience in commercial law.