The law which governs partnership in Tanzania is Part
X of the Law of Contract Act (LCA), Cap 345.
Here you will learn
Meaning of Partnership
A partnership is defined under section 190 of Cap 345 to mean “the relation which subsists between persons carrying on business in common with a view of profit”.
Formation
of Partnership
The law expressly disqualifies the minor from being a partner in a firm. [s.211] as far as partnership arises from an agreement the following persons are also disqualified; persons of unsound mind, bankrupt, etc.
- Introduction of a new partner – s. 198 LCA
- Expulsion
of a partner – s. 199 LCA
Types of Partners
General partner
This is a standard type of partner who has a right to participate in the management of the partnership and right to share in the profit as well as being liable to the liabilities of partnership to the fullest extent of his personal assets unless there is an agreement between himself and the other partner(s) that he should not.
For example, the partnership agreement may say that some junior partners are not required to order goods or sign cheques.
Sleeping/dormant partner
A partner who puts money into the firm but wishes not to have an active role in the management of the firm. However, he has the right to share the profits and response for liabilities of the firm.
Limited partner
This partner has a right to share the profits of the partnership but has no right to participate in the management of the firm. His liability to contribute is limited to the amount of capital originally he agreed to contribute.
Quasi partner/partner by holding out (s.206)-
The usual way in which this happens in practice is where a person allows his name to appear on the firm's letter heading, or on the lists of partners for inspection, whether that person is or is not a full partner, he may be sued by a client or creditor who has relied on the fact that he was a partner.
However to become a partner by holding out (or estoppels) the person held out must know that he is being held out as a partner and if he knows it he must be shown that he consents it.
The person who is held out is liable to a client or a creditor who has relied on him being a partner.
However in HUDGELL, YEATES AND CO V WATSON (1978), the court said that the true or actual partners could also be liable to such a client if they themselves were responsible for the holding out or knowingly allowed holding out to take place.
The Salaried partner
This is quite common today, at least in professional practices of, for example, solicitors and accountants to offer a young assistant a salaried partnership without the assistant putting any money into the firm as the general (equity) partner does.
Normally these salaried partners are paid a salary
just as an employee is with tax and national insurance is deducted from it.
Duties and Rights of Partners
Duties between partners
themselves/inter see
- A partner has to take care of the property, rights, goodwill and interest in property acquired by a partnership. [s. 195 (1)]. This shows that no individual partner is allowed to appropriate the property of the firm.
- To carry on the business of partnership for the greatest common advantage, to be just and faithful to each other, and to render true accounts and full information of all thing affecting the partnership to any partner or his legal representatives [s.192 Cap 345]
- Fiduciary duty as expounded under section 196 of the Cap 345
- Any differences in ordinary matters be decided by a majority of all
- partners. But no change in the nature of the business of the firm without the consent of all partners
- every partner has a right to have access to and to inspect and copy any of the firm's book.
- all partners are entitled to share equally in the capital and profits of the firm’s business and must contribute equally towards its losses
- be indemnified by the firm on payment made and personal liability incurred when working for the firm.
- Indemnify the firm for any loss he has caused.
Duties between Partners and Third Parties
- Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership; and the acts of every partner did act for carrying on business in the usual way of the kind carried on by firm bind the firm and his partners. [s. 201(1) SEE s. 201 (2) the acts where a partner will not be regarded as an agent unless there is express authority customs or usage.
- S. 202 any act executed in firm name in a manner showing intention to bind a firm is actually binding on the firm and all partners.
Partnership Property
All property and rights and interests in property originally brought into the partnership stock or acquired by purchase or otherwise, on account of the firm, or for the purpose and in the course of partnership business, including the goodwill of the business, are a partnership property and must be held by the partners for the purposes of the partnership and in accordance with the partnership agreement, or failing such agreement the provisions of section 195 (1) of the Law of Contract Act.
Properties which may be employed in partnership business belong to the following categories;
- Property which belongs to the partners as a firm – this is partnership property
- Property that belongs to the partners as co-owners but is not partnership property
- Property that belongs to individual partners
It is therefore important to determine which category property employed by the partnership belongs.
In MILES V CLARKE (1953) 1 ALL E.R 779 C carried on business as a photographer at premises of which he owned the lease for seven years from 1948.
i)
the consumable
stock- in - trade
ii)
The personal
connection brought by each partner
iii)
The lease of the
premises
iv)
The furniture,
fittings and the equipment of the studio
It was held that no more agreement between the parties should be supposed then was absolutely necessary to give business efficacy to the relationship between the parties.
Accordingly, since the only agreement was to the share of profits, only the consumable stock-in-trade should be regarded as partnership property.
Unless the contrary intentions appear, property and rights and interest in property acquired with money belonging to the firm are deemed to have been acquired on account of the firm section 195 (2) of Cap 345, however, such a purchase is not conclusive evidence because a contrary intention may be revealed by surrounding circumstances.
For example, if the property is bought ought of the firm’s money and conveyed to one partner to whom the price is debited as a loan from the firm.
There is evidence that the property is not bought on the account of the firm. It is therefore not partnership property.
Where land or any heritable interest therein has become partnership property, it shall, unless the contrary intention appears, be treated as between the partners (including the representative of the deceased partner), and also as between the heirs of the deceased partner and his executors or administrators, as personal or moveable and no real or heritable estate Section 195 (3) of Cap 345.
Expulsion of Partners
The law is to the effects that the partner will be expelled by other partners from the firm if the power to that effect has been conferred by agreement.
If the expulsion is challenged in the court the judge must see that the majority expulsion clause has not been abused.
- the complaint which is said to allow expulsion is covered by the expulsion clause;
for example, in SNOW v. MILFORD the court decided that “adultery of a banker all over Exeter” was not a ground for his expulsion because it was not within the wording of the expulsion clause. This dealt only with financial frauds which would discredit the banking business.
- That the partner expelled was told what he had done wrong and given a chance to explain. In BARNER v. YOUNG a partner who was living with a woman to whom he was not married continued to do so after becoming a partner. There was nothing to show that this was damaging to the firm business. Even so he was expelled by his fellow partners who refused to tell him why they were doing so. The court held that his expulsion was unlawful and ineffective.
- That those who exercised the powers of expulsion did so in all good faith.
Dissolution of Partnership
There are various ways through which an existing partnership may come to an end
Extra-Judicial Dissolution [s 212 – 214].
This type of dissolution takes place in the following situations;
- If entered for a fixed time, by the expiration of that time [s.212(1)(a)]
- If entered for a single venture or undertaking, by the termination of that venture or undertaking [s.212 (1)(b)] see FLORENT RUGARABAMU V. HASSAN MAIGE GORONGA [1988] TLR 243.
- If entered into for an undefined time, by the partner giving notice to the other or others of his intention to dissolve the partnership [s.212(c)]
- On the death or the bankruptcy of any partner [s.213].
- On the happening of any event which renders the business illegal [s.214].
Judicial Dissolution [s.215]
This occurs when partners apply for an order in the court of law under the following grounds:;
- When a partner becomes of unsound mind.
- A partner becomes incapable of performing his part of partnership contacts. The situation must be permanent.
In WHITEWELL v. ARTHUR (1865) a partner paralyzed for some months; he had recovered when the court heard the petition and it could not grant a dissolution.
Partnership agreement often contains express clauses which allow dissolution after a stated period of incapacity. In PEYTON v. MINDHAM (1972) the time for incapacity allowed by the clause was nine months.
- When a partner has been guilty of misconduct, which goes to the root of the business. This can be illustrated by the case of ESSEL V HAYWARD (1860) where a solicitor p/partner misappropriated 8000 pounds of trust money in the course of his duties as a partner. This was a ground for dissolving a partnership for a fixed term. It may outside conduct like a criminal act that ultimately makes the partner to be convicted for fraud or misconduct.
- When a partner wilfully and persistently commits a breach of the partnership agreement or conducts himself in such a manner that it becomes difficult for others to carry the business with him.
- When the business of the partnership can only be carried out at a loss. If this is temporary the court will not grant dissolution as was in the case of HANDYSIDE v. CAMPBELL (1901) a sound business was losing money because the senior managing partner was ill. He asked the court for dissolution; the court did not grant it as the other partners would manage it.
Notice of Dissolution of partnership
On dissolution of partnership or retirement of a partner, any partner any notify the same and may require the other partner or partners to concur for that purpose in all proper and necessary acts if any, which cannot be done without his or her concurrence. Section 217 of Cap 345
As unless proper notice of dissolution is given partners may be estopped from denying liability for debts contracted in the firm name by their former co-partners, it is necessary that proper notification should be made in every case.
In GOLDFARB V BARTLETT AND KREMER (1919) 122 L.T 588 the question was whether the notice of dissolution given to a continued partner after the dissolution of partnership binds the partners who had retired from the partnership. The judge said
there seems to be no express reported decision on the point … there are observations in WOOD v. BRADDICK (1808) tend to the conclusion that a retiring partner is bound by the notice given to the continuing partner.
In Notes to Chalmers’ Bills of Exchange, (8th
edition, p. 182) it is stated that notice to one partner after dissolution is
sufficient.
Implication of the
Dissolution of Partnership
After the dissolution of the partnership the authority of each partner to bind the firm, and the other rights and obligations of the partners continue so far as may be necessary to wind up the affairs of the firm and complete transactions initiated before dissolution.
a) Losses must be paid out of profit, then out of
capital and finally if necessary, by the partners themselves in the proportion
in which they agree to share the profit
b) The assets of the firm must be applied in the
following order;
i) The debts and liabilities of the firm to non
partners
ii) Paying to each partner rateably
what is due from the firm to him for advances as distinct from capital
iii) Paying to each partner rateably what is due from
the firm to him in respect of capital.
Payment of the firm debts Section 225 of Cap 225
Where there are joint debts due to the firm and also
separate debts due from any partner, the property of the firm shall be applied
in the first instance in payment of debts of the firm, and if there is any
surplus, then the share of each partner shall be applied in payment of his
separate debts or paid to him. The separate property of any partner shall be
applied first in the payment of his separate debts, and the surplus (if any) in
the payment of the debts of the firm.
Goodwill
The assets include not only the stock – in – trade and book debts, furniture, tools, machinery, etc, but also intangible, but often very valuable, property, called goodwill. It is saleable property.
Goodwill is public approbation which has been won by the business, and that, considered as a marketable thing; it is the probability of the customers or clientele of the firm resorting to the person(s) who succeed in the business as a going concern.
The value of the goodwill of a dissolved partnership as a saleable commodity is considerably decreased by the rule laid down in the case of TREGO v. HUNT (1896) AC 7 namely, that the sale of it does not prevent the vender from carrying on the competing business with the purchaser, but quondam partners may be restrained by injunction from soliciting any person who was the customer of the old firm.
The vendor may be prohibited from carrying on
business under the name of the old firm or from representing themselves as the continuing old firm, (Underhill, Principles of Law of Partnership, Butterworth
(1966) p 121-123
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