Enactment of Partnership Law Act 2019

The Partnership Law Bill was introduced to Parliament in May 2019 as a revision bill, subject to the revision powers set out in s 31 of the Legislation Act 2012. Therefore the 2019 Act does not make any substantive policy changes. Nevertheless, re-enactment of the 111 years old Partnership Act 1908 in contemporary language, style and format is intended to make the law more accessible, clarify Parliament's intent, and reconcile inconsistencies within the old Act.

During the second reading of the Bill, the re-enactment was described as a tidy-up exercise.  Following are some of the matters identified and updated under the 2019 Act:

(a)  Various provisions of the 1908 Act refer to "retirement", which have been interpreted over the years to include partners who have been expelled or compulsorily retired. References to "retirement" have been replaced with references to "leaving", which is also more particularly defined under s 7(2) of the 2019 Act.

(b)  The 1908 Act made references to both "partnership agreement" and "partnership contract".  While the use of two different phrases was not intended to create a meaningful distinction, it caused confusion amongst lawyers, the courts and partners themselves.  Similarly, the 1908 Act referred to "partnership business", "business of the firm" or just the "business".  Consistent wording will now be adopted for such references in the 2019 Act.

(c)  The 1908 Act had a long and complicated definition of what is a partnership and what is not.  The 2019 Act expressly provides that the relationship between shareholders or members of certain entities, including a limited partnership, is not a partnership within the meaning of the Act.

(d)  Archaic terminology (for example, "thereto", "therein", "thereby" and "thereof") has been eliminated.  Also, the reference to "servant" has been updated to "employee".

The 2019 Act defines 'partnership' as the relationship that exists between persons carrying on a business in common with a view to profit.  In reality, however, whether two or more persons are in a partnership or not is a question of both law and fact, and can be a very difficult one.

The significance of the partnership relationship is that, if found to exist, each partner becomes both an agent and a principal of another partner, able to enter into contracts on behalf of the partnership, and will generally be personally bound by contracts entered into by other partners.  Similarly, each partner may be personally liable for the partnership's debts, giving creditors rights to pursue claims against their personal fortune to enforce the moneys owed by the partnership.

The Partnership Act 2019 provides a set of rules defining the relationship of partners to third persons, or to one another.  The rules can act as a guideline if properly understood by the partnerships, or people conducting business with the partnerships.

If you are thinking about setting up a partnership, or suspect that you and someone else are already carrying on business in a partnership, you should seek legal advice.  Most partnerships have different ways of owning properties or sharing profits as well as liabilities amongst the partners, and the standard provision of the Partnership Act 2019 governing relations between partners may not suit your circumstances and the intentions of yourself and your partner.

Also, you need to fully understand the risk facing you, and your rights and obligations under a particular arrangement.  Alternatively, you may be in a dispute with another partner, the entire partnership or a third party, and may need legal representation, collectively or individually depending on the circumstances.

If you need advice or have any questions concerning partnerships, please contact us for professional assistance.

Please direct any enquiries to:

Craig Andrews (candrews@mcveaghfleming.co.nz) Auckland Office or

Andrew Knight (aknight@mcveaghfleming.co.nz) Auckland Office or

John Woolley (jwoolley@mcveaghfleming.co.nz) Auckland Office.

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