Formation
Case Law
MacCarthaigh v. D.
[1985] 1 I.R. 79
O’Hanlon J.
“This claim is contested by the appellant on a number of grounds. The limited partnership contemplated by the Agreement of the 23rd December, 1977, was not registered until the 16th February, 1978, whereas transactions involving the supply of plant and equipment to the hotel company commenced in the month of December, 1977. Section 4 of the Limited Partnerships Act, 1907, requires that the limited partners shall “at the time of entering into such partnership contribute thereto a sum or sums as capital or property valued at a stated amount.” The stated amount in the present case was a sum of £50 in respect of each of the limited partners but this sum was not contributed by them or any of them until the 14th July, 1978. Consequently, it was contended on behalf of the appellant that notwithstanding the registration of the limited partnership on the 16th February, 1978, the requirements of the Act of 1907 had not been complied with and no limited partnership known as “Metropole I” came into existence until the requirements of s. 4, sub-s. 2, of the Act were complied with some months after the relevant tax year had expired (if at all). I am of opinion that this submission is correct, and it was not seriously contested by the tax-payer in the proceedings on the Case Stated.
The tax-payer suggests, however, that this apparent break-down in the scheme which had been devised by the hotel company’s accountants was not really material; that monies were advanced, in any event, to the named persons, and plant and equipment were acquired therewith, and were subsequently leased to the hotel company in accordance with the provisions of the Master Leasing Agreement.
Section 8 of the Limited Partnerships Act, 1907, deals with the registration of a limited partnership and provides that there must be furnished to the registrar a statement signed by the partners containing certain particulars, including, inter alia, –
“(g) The sum contributed by each limited partner, and whether paid in cash or how otherwise.”
It must be assumed that registration of the limited partnership in the present case was achieved by submitting to the registrar, prior to the 16th February, 1978, a statement which omitted, or stated incorrectly, the amount contributed by each limited partner, as, by some oversight, their contributions were not made for some months after registration. Section 5 of the Act provides as follows:
“5. Every limited partnership must be registered as such in accordance with the provisions of this Act, or in default thereof it shall be deemed to be a general partnership, and every limited partner shall be deemed to be a general partner.”
As the registration effected in the present case does not appear to have been effected in accordance with the provisions of the Act, having regard to the irregularity already referred to, it appears to me that the transactions carried out by the parties to the so-called Partnership Agreement during the tax year 1977/78 must, prima facie, be regarded as having been carried out by them as general partners.
I would have some reservations, however, in coming to a conclusion that the arrangement entered into between them should properly be regarded as a partnership at all, since the Partnership Act, 1890, which was largely declaratory of the common law, commenced by defining partnership in s. 1 of the Act as “the relation which subsists between persons carrying on a business in common with a view of profit.” The business of the group (to use a neutral term) involved borrowing from the hotel company, at an undisclosed rate of interest, the funds necessary to purchase plant and equipment of a perishable character, for leasing to the hotel company at an annual rent equal to 10% of the cost price of the plant and equipment, the lessor to be responsible for all fair wear and tear to the plant and equipment. It was fairly conceded in the course of the hearing before the Appeal Commissioner that an important reason behind the scheme was to achieve a tax benefit for the participants.