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Reform of partnership law: the economic impact Comments from ACCA July 2004 ACCA is pleased to comment on the above consultation. Our comments reflect the reactions of a sample of our practising members, the vast majority of whom still operate within the partnership format. It is clear that the partnership remains a highly popular vehicle for conducting business, in the professional sector and elsewhere, despite the well-aired concerns about liability and the various options which now exist for firms to incorporate. This suggests that the existing law is seen as being substantially satisfactory by professional firms and others, causing us to take the view that, in any reform of the present law on partnerships, radical change is unnecessary and the essential distinctions between partnerships and corporate bodies should be retained. We do not argue against the desirability of making suitable modifications to the current law and bringing the 19 th century statute up to date where this is obviously appropriate. But it appears to us that, for the most part, both partnerships themselves and the courts have been able to circumvent the technical restrictions of the Partnership Act and operate successfully despite them. Indeed, the flexibility which is characteristic of partnership law affords them the opportunity to do just that. Where reform on the lines proposed by the Law Commissions is most likely to prove beneficial is in respect of smaller, less sophisticated firms which have not set up customised in-house arrangements and which would benefit from what would effectively be an expansion of the ¿default' regime. We set out below our reactions to the specific matters discussed in Annex A of the document. Dealing with partnerships We agree that giving partnerships legal personality would bring the legal status of partnerships into line with what is probably the perception of the general public. To this extent, therefore, reform would achieve a useful modernising function. We do not agree, though, that the present law makes it impossible, in practice, for partnerships to sue or be sued in their own name. This is an area in which the courts have shown a degree of flexibility in the way that they administer the law. Even if, in future, litigants were able more formally to bring proceedings against a partnership by name, our understanding is that judgement would be given against the individual partners and not against the firm as an entity, in which case we would not see much difference in practice being achieved. One area in which we would see change being beneficial concerns VAT registration. If partnerships could be accepted for group registration along with corporate bodies, this would be of significant administrative benefit to them. Entering into contracts Partnerships have always been able to make suitable arrangements to hold property. But allowing partnerships to own property in their own name, without the input of a trust or nominee company, should lead to administrative simplification and cost savings for most firms in the future. There is likely to be some significant cost, however, in the short term as existing partnerships transfer property rights held currently by companies or trusts. Continuity of partnerships Most substantial partnerships will have provisions in their partnership agreements to ensure that the partnership continues on a change of partner. For those firms, no new benefit will ensue from the proposed amendment to the law. For those firms which do not have such in-house provision, the proposal to make it a statutory rule that the partnership continues should avoid the need for them to buy in ad hoc legal advice and should also prevent complications when litigation has to distinguish between those who were partners before and after the time of the dispute. Withdrawal of partners The proposal to make statutory provision for what should happen on the death or bankruptcy of a partner is likely to bring certainty and save costs in smaller partnerships. Winding up of solvent partnerships We agree that the proposed new process for winding up solvent partnerships would be, in principle, likely to prove advantageous, on the basis that it would improve the chances of the winding up being conducted in an efficient and independent manner, and with less danger of disputes and arguments disrupting the procedure. As regards the three options set out in section 3 of the document, we would support the full implementation of the Law Commission's proposals. We suspect, however, that the actual cost benefits of reform, where they exist, will be felt disproportionately at the smaller end of the sector and will have limited effect on more substantial firms.

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