The position of the 'quasi-partnership' type private company in irish law

• Author: Derek Dunne
• Position: B.C.L., LL.M. (N.U.I.), B.L.
• Pages: 108-143

THE POSITION OF THE 'QUASI-PARTNERSHIP'

TYPE PRIVATE COMPANY IN IRISH LAW

DEREK DUNNE*

I. INTRODUCTION

It is a fact of Irish commercial life that the vast proportion of Irish

private companies, often started by families and friends amongst

each other exclusively, are of the ‘quasi-partnership’ type, which,

while taking the form of an incorporated company, is more

analogous to the partnership in terms of management and ownership

interests. Such companies are generally ‘closely-held’ i.e. with only a

few participants, with the distinction between ownership and control

upon which much of company law is premised rendered all but

illusory due to the vesting of these diverse interests in the same

personnel. Also, even outside the family-held company context, it is

almost trite to state that prospective parties to commercial joint

ventures (either for single projects or longer associations) will often

possess an awareness of their commercial, technical and fiscal

strengths and weaknesses stemming from long-standing commercial

or personal association, and it is often upon the strength of this

association that the participants choose to bind themselves together

to pursue a jointly-intended purpose.1Therearevarious mediums

through which commercial joint ventures can be conducted,2but

many prospective participants choose the private limited company

given the obvious benefits of limited liability.

It has been accepted judicially in Ireland by Gannon J. in Re

Murphs’ Restaurant3that, where there exists between the

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*B.C.L., LL.M. (N.U.I.), B.L.

1Which constitute a contract between, on the one hand, the company and its members, and

on the other, the members inter se, by virtue of section 25 of the Companies Act, 1963,

enforceable by the individual member in his capacity as a member, and the company itself.

2Legally,acommercial joint venturecan take the following forms-

(1) The unincorporated joint venture conducted through the medium of a partnership as

defined by the Partnership Act, 1890, or the limited liability partnership under the Limited

Partnership Act, 1907.

(2) The consortium, which is a contractual agreement between undertakings with neither

partnership or company involved, which are generally used for projects of extremely

circumscribed duration and a definite purpose, which have the drawback of potentially

unlimited liability exposure for the parties thereto should the venture be a financial failure.

(3) The corporate joint venture, conducted through the medium of a company duly

incorporated under and subject to the statutory regime of the Companies Acts, 1963-1999

with the protection of limited liability.

participants such “a relationship of equality, mutuality, trust and

confidence between them which constitutes the very essence of the

company”4on the basis of which the participants constitute a joint

venture, they may regard themselves by reason of this relationship

“as equal partners in a joint venture, and that the company was no

more than a vehicle to secure a limited liability for possible losses

and to provide a means of earning and distributing profits to their

best advantage with minimum disclosure”.5

As recognised in Ebrahimi v. Westbourne Galleries Ltd.6in the

‘quasi-partnership’ type company, the participants often will not

regard their commercial and legal relationship as being exhaustively

defined by the constitutional documents of the company, but that

they will each have “rights, expectations and obligations inter se

which are not necessarily submerged in the company structure”, over

and above their strict contractual rights, which are founded upon

this ‘personal relationship involving mutual confidence’.7These

supplemental expectations and obligations derive from the nature

and circumstances of the participants’ relationship, and it is these

extra-legal considerations upon which the continued viability and

ultimate success of the joint venturecompany are contingent. Thus,

it is submitted that the adequacy of the company as a medium

through which to conduct the business of a joint ventureis to be

gauged in the ability of the statutory and common law regime

governing the private company to afford adequate protection to and

vindication of the ‘legitimate expectations’ over and above strict

legal rights, for such constitute the essence of the joint venture

company.

This paper is concerned with the position of the quasi-partnership

type private company in Irish law; specifically, it is concerned with

the question of whether Irish law has sufficiently adapted to this type

of business arrangement, which breaks the precept of a separation

between membership and management. Indeed, it may be said that

the quasi-partnership type private company renders illusory separate

2004] The Position of the 'Quasi Partnership' type

Private Company in Irish Law 109

3[1979] I.L.R.M. 141 (H.C.).

4[1979] I.L.R.M. 141 at 151 (H.C.).

5[1979] I.L.R.M. 141 at 151 (H.C.).

6[1972] 2 All E.R. 492 (H.L.).

7Ebrahimi v. Westbourne Galleries[1972] 2 All E.R. 492 at 500 (H.L.) per Lord Wilberfource.

legal personality to an extent given the increasing difficulty of

classifying the company as separate in practical terms from the

participants running it. First, the discussion analyses the concept of

a‘quasi-partnership’ and attempts to define the unique

characteristics of such a business medium. Only in the light of such

an analysis can it be ascertained whether the law is sufficient to

protect such an entity. Secondly, the legal framework of company

law is discussed insofar as it is relevant to consideration of whether

it has developed sufficiently to protect the interests of the

participants of the quasi-partnership.

II. THE “ESSENCE” OF A “QUASI-PARTNERSHIP” TYPE

PRIVATE COMPANY

It is necessary to outline a framework of some of the interests and

obligations over and above those in the company’sconstitutional

documents which the members of a quasi-partnership may have, for,

as noted above, this in turn will condition any opinion on the

adequacy of Irish law in protecting such interests.

Given that everything will depend on the context and the nature

of the particular parties’ relationship, an exhaustive list is

impossible, but the following is a synthesis of judicial guidance on

what the essence of a ‘quasi-partnership’ private company

encompasses:

(1) As Lord Wilberforce stated in Ebrahimi v. Westbourne Galleries

Ltd.8there will often be an understanding in a ‘quasi-partnership’

type private company that most, if not all, the shareholders will

actively participate in the daily management of the company’s

business, or at least that each member of the venture should have a

meaningful role in the formulation and pursuit of business policy,

irrespective of the logical consequences of the formal distinction

between ownership and control of the company as manifested in the

articles of association, under which the powers of management of

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8[1972] 2 All E.R.492 (H.L.).