Tougher Partnership Rules Could Increase Liability Risk

Legal experts are calling for a change in the law to make it easier to prosecute partnerships and individuals for criminal offences, even after the business has been dissolved and no longer officially exists.

Under current legislation, a partnership which has been dissolved no longer has any legal existence and cannot be called to account to for any allegations of wrongdoing.

The High Court has recently produced a Discussion Paper on Criminal Liability of Partnerships in which the Scottish Law Commission considers ways of preventing the prosecution of a partnership from being frustrated by its dissolution. It also examines the circumstances in which individual partners may be held criminally liable for offences committed by a partnership and asks whether legislation should be introduced to make it easier to prosecute partners as individuals.

“Where there is evidence that a partnership has committed an offence, it should be possible to prosecute that partnership, and make the partners liable for any fines,” said Patrick Layden QC TD, the lead Commissioner on the project.

“A partnership and its partners should not be able to avoid liability just by being dissolved. Our Discussion Paper explores ways to prevent this. We also consider whether it should be made easier to prosecute individual partners for offences committed by the partnership, providing an added incentive for partners to ensure that their partnerships comply with the law.”

However, even under existing legislation, many partners can find themselves embroiled in problems long after their business has ceased to exist unless the proper procedures have been followed, warns David Reilly, commercial director of Create Ts and Cs, which specialises in tailor-made commercial contracts for SMEs.

“Dissolving a partnership can already appear complicated to businesses and any new changes to the legislation must be communicated with this in mind,” said Mr Reilly.

“It not uncommon for some companies to move from being limited companies to partnerships, then back to limited company or a sole trader.

“Some business people have a tendency to go on a journey which leaves a complex legal legacy behind them especially if they don’t dissolve partnerships as they move.”

“Failing to dissolve partnership is a bit like business bigamy. Most people entering a second marriage will make sure they have been divorced first, but not all companies operate so tidily,” said Mr Reilly.

“If a partnership is not resolved it can cause problems with a lot of issues including liability, intellectual property and the relationship with suppliers.

“If there is any intellectual property created within the partnership it will require the partnership being dissolved and the intellectual property being transferred to the next business entity in order for people to use that IP in the next business venture.”

The Commission has called for the views of interested organisations and members of the public by to be submitted for consultation before 12 August so that it’s final report can be published later in the year.