Partnership (Australia) - Partner's Liability

Partner's Liability

Perhaps the most important question for any partner is 'what is my liability under this arrangement'.

In essence, the liability of a partner (or even a non-partner who was 'held out' to be a partner see below) is significantly large. Every partner or person held out to be a partner is both an agent and principal of the firm and may thus bind the firm and the partners: s.9. Simply, each partner is his brother's proverbial keeper and will be responsible both legally and financially for the actions of the other partners in the general course of business.

To give a clear example, where one partner acts negligently and there is no indemnity insurance (or the indemnity insurer refuses to cover the loss), the liability of all partners will be joint and several: s.16. The cause of major distress for partners arises where the other partners become insolvent. The weight of total liability would rest on the solvent partners. Thus put simply, even if a person only had a 25% partner's share, he or she would be responsible for covering all 100% (potentially exorbitantly exceeding their investment) of the damage arising from the negligence if the other partners do not have the means to pay.

As alluded to above, the issue of "holding out", which is discussed in s.18(1) of the Act, is particularly relevant. "Holding out" refers to where a non-partner advertises himself or alternatively is advertised to the world as being a partner. This advertising can be either explicit and/or implicit

For example, where the firm permits a non-partner to 'sign off' on company accounts or documents or where a non-partner has an office next to the partner's or even enjoys the perks of the true partners, these are implicit indication to the world that the non-partner is actually a partner. To exemplify express indications, this would occur where a non-partner has his name on the company letter-head or to go even further, actively introduces himself as a partner.

Not only may the non-partner be held to be liable as a partner, the true partners will also be liable for the non-partners actions just as they would be for the actions of a true partner. This is provided that the relevant third-party was reasonably unaware of the non-partner's true position in the business and the conduct on the non-partner could be described as in the ordinary course of business. These two are generally part and parcel as if the transaction is not in the ordinary course of business, then the less likely it is that a third party would genuinely believe that the non-partner was a partner.