Partnerships With Personality

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:

1. the abil­ity to own and deal with their sep­a­rate prop­erty in accor­dance with the agree­ment of their partners,
2. the abil­ity to sue and be sued in the partnership’s name, and
3. 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.