Before the passing of the Limited Partnership Act, 1907, 7 Edw. VII. c. 24, which came into operation on January 1, 1908 (see s. 2), the only partnerships recognised by English law were those in which all the partners were liable for all the debts of the firm, that is, in which the liability of all the partners was unlimited. The Act of 1907 for the first time permitted partnerships to be formed in which the liability of some of the partners was allowed to be limited to the amount of capital contributed by them. These latter partnerships are called LIMITED PARTNERSHIPS, and in the article PARTNERSHIPS, in which the liability of all the partners is unlimited, are called ORDINARY PARTNERSHIPS. Subject to the provisions of the Limited Partnership Act, 1907, limited partnerships are governed by the same law as ordinary partnerships; it is therefore proposed in the present article to consider first the law applicable to ordinary partnerships, and then the law peculiar to limited partnerships.

A. ORDINARY PARTNERSHIPS.

Until recent years the law of partnership, like many other important branches of English law, was only to be found in legal decisions and text-books, but in the year 1890 the existing law on this subject was to a large extent codified, and to some extent amended, by the Partnership Act of that year (53 & 54 Vict. c. 39), which came into operation on the 1st January 1891 (ibid., s. 49). The Act is not a complete code of partnership law; it contains no provisions regulating the administration of partnership assets in the event of death or bankruptcy, and it is silent on the subject of goodwill. The Act itself provides, by sec. 46, that the existing rules of equity and common law shall continue in force, except so far as they are inconsistent with the express provisions of the Act. But on all points specifically dealt with by the Act, the Act, and not the decisions previous to it, is now the one binding authority (see the remarks of Lord Herschell in Bank of England v. Vagliano, [1891] A. C. 144, 145; and Herdman v. Wheeler, [1902] 1 K. B., at p. 367).

1. NATURE OF PARTNERSHIP.

(1) Definition of Partnership.-By the Partnership Act, 1890, s. 1 (1), "partnership" has been defined as "the relation which subsists between persons carrying on a business in common with a view of profit." Business includes every trade, occupation, or profession (see s. 45).

This definition would include not only partnerships in the ordinary sense of the term, but also many corporations and companies, such as joint-stock companies, cost-book mining companies, and others, which differ from ordinary partnerships in many important respects. These corporations and companies are, however, excepted from the Partnership Act (s. 1 (2)), and omitted from the present article, which is confined to partnerships within that Act and the Limited Partnerships Act, 1907.

The statutory definition taken in connection with the other sections of the Partnership Act, especially sec. 2, is now the ultimate test applicable to the determination of the question, whether in any particular case a partnership does or does not exist. It follows from the terms of the definition, that societies which do not carry on business with a view to profit, such as clubs (Flemyng v. Hector, 1836, 2 Mee. & W.

173; 46 R. R. 553; Todd v. Emly, 1841, 8 Mee. & W. 505; The St. James's Club, 1852, 2 De G., M. & G. 383; 42 E. R. 920; Wise v. Perpetual Trustee Co., [1903] A. C. 139) and societies formed for the purpose of purchasing land and reselling it to the members (In re Siddall, 1885, 29 Ch. D. 1; Crowther v. Thorley, 1884, 32 W. R. 330), or of investing the moneys of the members, and managing, but not trafficking in, the investments so made (Smith v. Anderson, 1880, 15 Ch. D. 247), are not partnerships.

Moreover, although such societies as mutual insurance (Ex parte Hargrove, 1875, L. R. 10 Ch. 542; Padstow Total Loss Assoc., 1882, 20 Ch. D. 137), mutual loan (Shaw v. Benson, 1883, 11 Q. B. D. 563; Ex parte Poppleton, 1884, 14 Q. B. D. 379), or mutual benefit (Jennings v. Hammond, 1882, 9 Q. B. D. 225) societies have been held to be associations for the acquisition of gain within the meaning of the Companies Act, 1862 (s. 4), yet these societies are not partnerships (Lindley on Partnership, pp. 14, 15; Pollock's Digest of the Law of Partnership, pp. 11, 12), for the members do not carry on any business in common, nor, it would seem (see 20 Ch. D. pp. 145, 149), is their business, such as it is, carried on with a view to profit in the sense in which that word is used in the above definition.

The test of partnership is the carrying on of a business, and not an agreement to carry it on. Persons who are only contemplating a future partnership, or have only entered into an agreement that they will at some future time, or on the fulfilment of certain conditions, become partners, are not partners until the arrival of that time or the fulfilment or waiver of those conditions (Dickinson v. Valpy, 1829, 10 Bain. & Cress. pp. 141, 142; 34 R. R. 348; Fox v. Clifton, 1830, 6 Bing. 776; 31 R. R. 536; Howell v. Brodie, 1839, 6 Bing. N. C. 44; 54 R. Ř. 711). It is upon this principle that promoters and others merely associated together to form a company are not partners even though they intend to become members of the company after its formation (Reynell v. Lewis, 1846, 15 Mee. & W. 517; 71 R. R. 751; Capper's Case, 1850, 1 Sim. N. S. 178; 61 E. R. 69; Hutton v. Thompson, 1851, 3 H. L. C. 161; 10 E. R. 61; Bright v. Hutton, 1852, 3 H. L. C. 368; 10 E. R. 133).

If a person stipulates for an option to become a partner, he will not be a partner until he has exercised that option, even though he may have a considerable control over and interest in the business in the meantime (Ex parte Jones, [1896] 2 Q. B. 484; Ex parte Davis, 1863, 4 De G., J. & S. 523; 46 E. R. 1022; Gabriel v. Evill, 1842, 9 Mee. & W. 297; Price v. Groom, 1848, 2 Ex. Rep. 542). It must not, however, be supposed that a person who enters into an agreement which, in fact, creates a present partnership, will be able to shelter himself from the consequences of that position under cover of such a stipulation as is now under consideration (see Courtenay v. Wagstaff, 1864, 16 C. B. N. S. p. 131).

(2) Rules for Determining the Existence of a Partnership.-Partnership is a relation resulting from a contract, and the fundamental rule to be observed in determining the existence of a partnership, is that regard must be paid to the true contract and intention of the parties as appearing from the whole facts of the case (Cox v. Hickman, 1860, 8 H. L. C. 268; 11 E. R. 431; Mollwo, March & Co. v. Court of Wards, 1872, L. R. 4 P. C. 419; Badeley v. Consolidated Bank, 1888, 38 Ch. D., at p. 258). If a partnership be the legal consequence of the true

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agreement, the parties thereto will be partners though they may have intended to avoid this consequence (Pooley v. Driver, 1876, 5 Ch. D., 458; Ex parte Delhasse, 1878, 7 Ch. D. 511; and Adam v. Newbigging, 1888, L. R. 13 App. Cas., at p. 315). Although this principle is not enunciated in the Partnership Act, 1890, it is still law (Davis v. Davis, [1894] 1 Ch. 393, and Part. Act, 1890, s. 46). The Act contains (s. 2) several important subsidiary rules for determining whether a partnership does or does not exist. These rules merely state the previous law, and the cases which were formerly the authorities for them may still be usefully referred to in illustration of their meaning and application.

Co-ownership of property does not of itself create a partnership as to anything so owned, whether the owners do or do not share any profits made by the use thereof (Part. Act, 1890, s. 2 (1)). Thus persons who join in the purchase of goods for the purpose of dividing such goods among themselves are not partners (Coope v. Eyre, 1788, 1 Black. (H). 37; 2 R. R. 706; Hoare v. Dawes, 1780, 1 Doug. K. B. 371), though if they purchase goods for resale, with a view to divide the profits arising therefrom, they are partners (Reid v. Hollinshead, 1825, 4 Barn. & Cress. 867; 28 R. R. 488; see, too, Oppenheimer v. Frazer & Wyatt, [1907] 2 K. B. 50, and [1907] 1 K. B. 519). So co-owners of a racehorse, who share his winnings and the expenses of his keep, and have agreed that one of them shall have the management of the horse, and in the first instance find the money necessary for his keep, may not be partners as to the horse (French v. Styring, 1857, 2 C. B. N. S. 357). So, too, part owners of a ship are not usually partners (Helme v. Smith, 1831, 7 Bing. 709; 33 R. R. 630; Green v. Briggs, 1848, 6 Hare, 395; 67 E. R. 1219; 77 R. R. 156), though they may be (Campbell v. Mullett, 1818, 2 Swans. 551; 36 E. R. 727; 19 R. R. 127). Co-owners who are not partners as to the property owned in common, may be partners as to the profits derived from its use (see Davis v. Davis, [1894] 1 Ch. 393, and cases cited infra under the sub-heading "Partnership Property ").

The sharing of gross returns does not of itself create a partnership, whether the persons sharing such returns have or have not a common interest in the property from which such returns are derived (s. 2 (2)). Thus where a firm of stockbrokers had entered into an agreement with one G. who was not a stockbroker, that he should introduce clients to them, and they should transact business on the Stock Exchange for such clients, on the terms that G. should receive one-half of the commission earned by the firm in respect of such transactions, and should pay the firm one-half of any loss incurred thereby, the Court of Appeal considered that no partnership existed between the firm and G., for no partnership was intended, and the commissions to be divided. were gross returns, not profits (Sutton & Co. v. Grey, [1894] 1 Q. B. 285; see also Lyon v. Knowles, 1863, 3 B. & S. 556, an agreement between the proprietor and the manager of a theatre; and the agreement between author and printer in Kelly's Directories, Ltd. v. Gavin & Lloyds, [1901] 1 Ch. 374, affirmed [1902] 1 Ch. 630).

It was at one time thought that all persons who shared in the profits, as distinguished from the gross returns of a business, were so far partners in that business as to incur the liabilities of partners to third parties, even though no partnership was contemplated as between themselves (Grace v. Smith, 1775, 2 Black. (W). 998; Waugh v. Carver, 1793, 2 Black. (H.) 235; 14 R. R. 845). This doctrine was, however,

finally overruled by the House of Lords in the celebrated case of Coc v. Hickman, 1860, 8 H. L. C. 268; 11 E. R. 431. Since this decision, participation in profits has ceased to be a conclusive test either of partnership or of liability as a partner.

Sharing profits, though not of itself sufficient to constitute partnership, is prima facie evidence of it (s. 2 (3)). This means, that if all that is known is that two persons are sharing the profits of a business, the inference is that such persons are partners; if, however, the participation. in profits is only one among other circumstances, all the circumstances must be considered in order to ascertain the real intention of the parties; and in such case the participation in profits must not be treated as raising a presumption of partnership which has to be rebutted by something else (Davis v. Davis, [1894] 1 Ch. 396; Badeley v. Consolidated Bank, 1888, 38 Ch. D. 238).

The books contain many decisions in which persons entitled to share the profits of a business have been held not to be partners, eg. Hawksley v. Outram, [1892] 3 Ch. 359 (vendors and purchasers of a business); Holme v. Hammond, 1872, L. R. 7 Ex. 218 (executors of deceased partners and surviving partners); Bullen v. Sharp, 1865, L. R. 1 C. P. 86; and Ex parte Tennant, 1877, 6 Ch. D. 303 (arrangements between father and son); Ogdens, Ltd. v. Nelson, [1903] 2 K. B. 287, affirmed [1904] 2 K. B. 410, and [1905] A. C. 109 (traders and customers; a partnership in this case was not suggested). Some of the more common cases were specially provided for by Bovill's Act, 28 & 29 Vict. c. 86, which, though repealed, is substantially re-enacted by the Partnership Act, 1890 (s. 2 (3) and s. 3). By the latter Act it is provided that persons sharing the profits of a business under the following circumstances, do not, by reason only of such participation in profits, become partners in the business or liable as such, viz.: a creditor receiving payment of his debt by instalments or otherwise out of the profits of a business (s. 2 (3) (a); Cox v. Hickman, 1860, 8 H. L. C. 268); a servant or agent employed in the business, and remunerated by a share of the profits (s. 2 (3) (b); Ross v. Parkyns, 1875, L. R. 20 Eq. 331); a widow or child of a deceased partner, receiving by way of annuity a portion of the profits of the business (s. 2 (3) (c)); a person who has advanced money to another engaged or about to engage in business, on a contract with him, that the lender shall receive a rate of interest varying with the profits, or a share of the profits, arising from carrying on the business (or a sum out of such profits, see Ex parte Jones, [1896] 2 Q. B. 484), provided that the contract be in writing, and signed by or on behalf of all the parties thereto (s. 2 (3) (d)); and 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 (s. 2 (3) (e)).

If, however, the person to whom the money is advanced on such a contract as above mentioned (whether it be in writing or not, Ex parte Schofield, [1897] 2 Q. B. 495), or the buyer of the goodwill becomes bankrupt, compounds with his creditors or dies insolvent, the lender is not entitled to recover anything in respect of his loan, nor is the seller of the goodwill entitled to recover anything in respect of his share of profits, until the claims of the other creditors for value are satisfied (s. 3 re-enacting s. 5 of Bovill's Act; and see Ex parte Taylor, 1879, 12 Ch. D. 366). A person who has advanced money on the terms of sharing profits cannot escape from the operation of sec. 3 by subse

quently agreeing to take a fixed rate of interest, unless the subsequent transaction amounts to the repayment of the original loan and the creation of a new one (In re Stone, 1886, 33 Ch. D. 541; In re Hildesheim, [1893] 2 Q. B. 357; In re Mason, Ex parte Bing, [1899] 1 Q. B. 810). This section does not, however, deprive the lender of any security he may have taken for his money (Ex parte Sheil, 1877, 4 Ch. D. 789), nor of his right to enforce such security (Badeley v. Consolidated Bank, 1888, 38 Ch. D. 238), nor does it affect his rights in respect of other bond-fide advances made by him (Ex parte Mills, 1873, L. R. 8 Ch. 569; In re Mason, Ex parte Bing, [1899] 1 Q. B. 810).

The provisions of the Partnership Act now under consideration do not enable persons who are really partners to escape from the liabilities of that position. Persons who have advanced money to others engaged in business have in many cases been held to be partners, in spite of elaborate precautions to avoid this risk (compare Syers v. Syers, 1876, 1 App. Cas. 174; Pooley v. Driver, 1876, 5 Ch. D. 458; and Ex parte Delhasse, 1878, 7 Ch. D. 511, where the so-called lender was held to be a partner; with Mollwo, March & Co. v. Court of Wards, 1872, L. R. 4 P. C. 419; Badeley v. Consolidated Bank, 1888, 38 Ch. D. 238; Ex parte Jones, [1896] 2 Q. B. 484, where he was held to be a creditor, and not a partner).

Persons who agree to share the profits of a business and to share the losses in the sense of making good the losses, if any are sustained, will be partners in the business, though as between themselves and the other persons interested they may not have all the rights of a partner (Walker v. Hirsch, 1884, 27 Ch. D. 460). Persons may, however, be liable to make good some losses without thereby becoming partners (Sutton & Co. v. Grey, [1894] 1 Q. B. 285; Ross v. Parkyns, 1875, L. R. 20 Eq. 331).

Persons who agree to share the profits of a business are prima facie partners, although they stipulate between themselves that they shall not be liable for losses beyond the sums they agree to advance (Brown v. Tapscott, 1840, 6 Mee. & W. 119), or that some of them shall be indemnified by the others against loss (Bond v. Pittard, 1838, 3 Mee. & W. 357; 49 R. R. 638; and Geddes v. Wallace, 1820, 2 Bli. 270; 4 E. R. 328; 21 R. R. 66).

A common stock is not essential to a partnership; persons who share profits may be partners, though each uses his own property for earning the profits to be divided (Fromont v. Coupland, 1824, 2 Bing. 170; 27 R. R. 575).

Persons may be partners in one particular transaction or series of transactions without being partners in their business generally (Robinson v. Anderson, 1855, 20 Beav. 98; 52 E. R. 539; 7 De G., M. & G. 239; 44 E. R. 94; Lovell v. Hicks, 1837, 2 Y. & C. Ex. 481). Such partnerships are sometimes called "particular" as distinguished from "general' partnerships.

When several persons, A., B., and C., are in partnership together, and one of them, A., agrees to share his portion of the profits with a stranger D., this agreement will not make D. a partner with B. and C., who are no parties to the agreement (see per Lord Eldon in Ex parte Barrow, 1815, 2 Rose, 252), though it may make him a partner with A. and so constitute what is called a "subpartnership." This is in accordance with the maxim of the civil law: "Socius mei socii, socius meus non est."