This provision defines partnership and firm, explains what does and does not count as a partnership, and gives priority rules for certain lenders and goodwill sellers in insolvency.
Partnership Act 1890 2020 REVISED EDITION This revised edition incorporates all amendments up to and including 1 December 2021 and comes into operation on 31 December 2021 An Act to declare and amend the Law of Partnership. [12 November 1993*] * Date when this Act was made applicable by the Application of English Law Act (Cap. 7A). Nature of partnership Definition of partnership 1.—(1) Partnership is the relation which subsists between persons carrying on a business in common with a view of profit. (2) But the relation between members of any company or association which is — (a) registered as a company under the Companies Act 1967 or under any previous corresponding law; or (b) formed or incorporated by or in pursuance of any other Act of Parliament, is not a partnership within the meaning of this Act. Rules for determining existence of partnership 2. In determining whether a partnership does or does not exist, regard shall be had to the following rules: (a) joint tenancy, tenancy in common, joint property, common property, or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof; (b) the sharing of gross returns does not of itself create a partnership, whether the persons sharing such returns have or have not a joint or common right or interest in any property from which or from the use of which the returns are derived; (c) the receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but the receipt of such a share, or of a payment contingent on or varying with the profits of a business, does not of itself make him a partner in the business; and in particular — (i) the receipt by a person of a debt or other liquidated amount by instalments or otherwise out of the accruing profits of a business does not of itself make him a partner in the business or liable as such; (ii) a contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as such; (iii) a person being the widow or child of a deceased partner, and receiving by way of annuity a portion of the profits made in the business in which the deceased person was a partner, is not by reason only of such receipt a partner in the business or liable as such; (iv) the advance of money by way of loan to a person engaged or about to engage in any business on a contract with that person that the lender shall receive a rate of interest varying with the profits, or shall receive a share of the profits arising from carrying on the business, does not of itself make the lender a partner with the person or persons carrying on the business or liable as such: Provided that the contract is in writing, and signed by or on behalf of all the parties thereto; (v) a person receiving by way of annuity or otherwise a portion of the profits of a business in consideration of the sale by him of the goodwill of the business is not by reason only of such receipt a partner in the business or liable as such. Postponement of rights of person lending or selling in consideration of share of profits in case of insolvency 3. In the event of any person to whom money has been advanced by way of loan upon such a contract as is mentioned in section 2 or of any buyer of a goodwill in consideration of a share of the profits of the business, being adjudged a bankrupt, entering into an arrangement to pay his creditors less than the full amount owed, or dying in insolvent circumstances, the lender of the loan shall not be entitled to recover anything in respect of his loan, and the seller of the goodwill shall not be entitled to recover anything in respect of the share of profits contracted for, until the claims of the other creditors of the borrower or buyer for valuable consideration in money or money’s worth have been satisfied. Meaning of firm 4. Persons who have entered into partnership with one another are for the purposes of this Act called collectively a firm, and the name under which their business is carried on is called the firm‑name.