Law Relating to Banking in Hong Kong

4.Partnership

Chapter฀4฀ Partnership฀ 4.1฀introductio n฀ Traders an d merchants have always combined their resources an d efforts t o achiev e greate r efficienc y an d highe r profits . Th e sim plest form of such association is the partnership. The limited liability company , deal t wit h i n th e nex t chapter , i s a late r an d mor e complex development . Bot h partnership s an d Umite d companie s are sometimes called simply 'companies' and many a partnership's name i s th e surnam e o f on e o r mor e partners , followe d b y 'an d Company'. A partnershi p i s als o calle d a 'firm ' an d th e nam e i t chooses t o carr y o n it s busines s unde r i s calle d th e fir m name , Partnership Ordinance s6. The best way to introduce the nature of a partnership i s t o explai n it s characteristic s b y contrastin g i t wit h the Umited company. A limited company is a corporation, a separate legal entity. A partnership is not; it remains no more than a collection of separate human persons. Liabihty of members (i.e. shareholders) of a Umited company is limited to the amount unpaid on their shares, or, if it is a company limited by guarantee, to the amount guaranteed. Partners are liable personall y fo r th e debts of th e firm and that liability i s unlimited, excep t fo r limite d partners , describe d below , 4.12 . Partners are agents of the firm and of one another. Shareholders are not agents of the company or one another. A company comes into existence onl y whe n i t i s grante d registration . A partnershi p i s formed by the agreement of the partners, though it must register its business names. Moreover, a limited partnership is ineffective unti l registered, 4.12 . A company has only the powers grante d to it by legislation. Anything it does which is not authorized is ultra vires. There is no such limitation o n a partnership. When a partner die s or goes bankrupt, the firm is dissolved. The death or bankruptcy of a shareholder does not affect a company. 107฀ 108฀Law ฀Relating฀to฀Banking฀in฀Hong฀Kong฀ 4.2฀Definitio n฀ The la w governin g partnership s i s foun d partl y i n th e rule s o f common law and equity but mostly in legislation: Partnership Ordinance (PO) and Limited Partnerships Ordinance (LPO). Although the legislation purporte d t o declar e th e la w a s i t the n stood , th e rules o f commo n la w an d equit y appl y excep t s o far a s the y ar e inconsistent with the legislation. Moreover, it is important alway s to keep in mind that the purpose of PO and LPO is not to regulate the operatio n o f partnerships . B y their partnershi p agreemen t th e partners make their own law to govern the internal workings of the firm. PO s3(l ) define s partnershi p a s 'th e relatio n whic h subsist s between persons carrying on a business in common with a view of profit.' Th e partners must make an agreement; that agreement must be to do business together as a firm; the firm must be intended to make a profit. 'Business ' includes 'ever y trade, occupation, or profession ',PO s2. 4.3฀Formatio n฀ 4.3.1 Partnership agreement Th e partnership agreement is usually made by deed an d that form i s advisable. But it is still vaUd if made in writing, o r merel y oral . Indeed , a partnershi p agreemen t ca n b e infened fro m th e conduct o f the parties. The general rules o f th e law of contract apply to formation o f a partnership, as they do in other respect s t o it s operation . Th e intentio n o f th e partie s wil l prevail and that may not be shown by the words they use. In Chan Sou Kut v Gray and Iron [1986 ] HKL R 8 4 th e partie s signe d a contract containing a clause 'thi...