Partnerships With Personality
MJM · August 1st, 2006
On 26 May 2006, Bermuda’s House of Assembly passed a consequential bill bringing into force a number of material amendments (the "Amendments") to the Partnership Act 1902 (the "Act") which are to take effect as of 8 September 2006.
The Act previously deemed Bermuda partnerships as not having any degree of legal personality; partnerships were considered mere relationships between partners carrying on a business in common with a view to profit.
Whereas the rights of Bermuda partnerships were previously a function of the rules of the court and the laws of agency, recent amendments enable all partnerships, with the exception of overseas partnerships created under the Overseas Partnership Act, to formally elect, upon filing a declaration with Bermuda’s Registrar of Companies, to present themselves as legal persons.
The principal implications for partnerships electing to be recognized as legal persons include:
- the ability to own and deal with their separate property in accordance with the agreement of their partners,
- the ability to sue and be sued in the partnership's name, and
- the ability to change their constitution, for instance by admitting new partners, without having to dissolve the existing partnership – a point of ambiguity under the previous wording of the Act.
Notwithstanding the Amendments, partners of partnerships which elect to have legal personality will remain jointly and severally liable for the actions of the partnership. In the case of limited partnerships, the general partner will continue to be liable for the debts of the partnership once all assets of the partnership have been exhausted. Judgments against partnerships which elect to have legal personality may be enforced against an individual partner and, on payment of the judgment debt, such partner is entitled to relief, pro rata, from the partnership and its other partners.
Existing partnerships have until 8 September 2007 (one year from the effective date of the Amendments) to make the election, whereas new partnerships must submit their declarations within 14 days of formation. In the case of new limited and/or exempted partnerships, declarations must be submitted upon registration. Such elections are in all cases irrevocable and failure to make an election within the prescribed period of time is final.
As the Amendments represent a significant change to Bermuda's partnership legislation, we recommend that entities wishing to make an election review and, if necessary, amend their partnership agreements in order to ensure that the election will have the desired effect. We also recommend that such parties consult with counsel in the jurisdictions where they operate, as well as those in which their partners are located, regarding the potential regulatory and fiscal ramifications of making the election.