All the partners in a business will be legally responsible for any amount outstanding by the company, which was acquired at the time when he was one of the partners. In England, all partners in a business will be liable equally with the others. If judgment is obtained against the firm as a joint liability of all the partners, each partner will be legally responsible for the full amount of the judgment. If, however, judgment is obtained only against some members of the company without satisfaction, action cannot be taken against the remaining partners.
In Scotland the partners are not just equally, but likewise severally (i.e. jointly but also independently) liable and the firm is a separate legal entity and can sue and be sued.
Limited Partnerships Act, 1907
This Act provides that a Limited Partnership may be formed in which one member at least is a general partner and one at least a limited partner. The limited partner invests capital in the corporation, but may not take any part in the management of the company. He may, however, offer advice on the management to the other partners. He shares in the profits, but his liability for the debts and responsibilities of the company is limited to the amount of capital he has put into the partnership.
The management of the company is in the hands of the general partners whose liability is that of ordinary members of a partnership firm. Should a limited partner withdraw any part of his capital he is accountable for all outstanding debts borne by the company to the extent of the capital so withdrawn. Limited Partnerships must be registered with the Registrar of Joint Stock Companies, but these are generally rare.
Sleeping or Dormant Partners
A ‘Sleeping (or Dormant) Partner’ is one who takes no active role within the actual running of the company, although he continues to share in the profits and his capital remains in the firm. He is as fully accountable for the debts and responsibilities of the company as any active partner.
Partnership Accounts
The Capital Account in the books of a sole trader contains the record of the financial position between the business and the owner. It shows the capital invested in the business at the beginning of a trading period and, at the close of that trading period, the net profit or loss and any drawings made by the proprietor. Where there are two or more owners of the company, as with any type of a partnership, there must be two or more Capital Accounts; a separate one for each partner in which is recorded his contribution to the firm’s capital.
Tags: accounts, business partners, capital, debts, joint stock, liability, limited partnership, profits