Posted Thursday 15th August 2024
Businesses can take many legal forms, one of which is a partnership.
Within this, the first type of partnership is an ordinary partnership (OP). This can arise either through intentionally setting up as such, or through conduct. The latter is a limited partnership (LP), which must be set up through Companies House (and thus cannot occur through conduct). The difference between the two is that the former is not a separate legal entity, and as such means that the members are individually liable for the company’s liabilities. The latter however, provides ‘limited liability’, meaning that those who are members of the partnership can stand to lose the amount which they have invested (save for exceptional circumstances).
In practice, the difference between the two is stark, and can come down to the finest of margins, demonstrating the need to proactively establish your company’s structure, and can be seen in the case of Hamilton v Barrow & Anor [2024].
Here, a group of four managers of investments of four separate investment pools were deemed to have formed an OP through their conduct. The result was that, when an investor in one of the pools claimed he had been misled, all four of the managers were held to be liable, and as the partnership was held to be an OP, this liability was not limited to the company, and the managers would have had to satisfy this liability with their personal assets.
The impact of this case is that it clearly demonstrates the importance of actively determining your business’ structure as one offering limited liability, before a less than favourable one is determined by the courts.
If you require assistance in company structuring or any other corporate matter, please contact Rajiv Samani of our corporate team, who is well-versed in incorporations and reorganisations!
This article is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.
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