The Business Legal Services Blog

Starting a Business: Partnerships

Following on from our discussion of Companies, you may have decided that a Limited Company is not right for you. Another alternative is a Partnership.

Without realising, you may already be in a Partnership. Two or more people carrying on business together with a view to profit is a Partnership and brings with it certain consequences. It is therefore very important that you consider carefully the consequences of going into business with somebody and if appropriate seek advice before doing so.

Rules for a partnership

In the absence of an agreement, the Partnership Act 1890 will determine each party’s rights and obligations with the other partnerships. You could therefore be subject to Victorian legislation which may not be right for you.

In the absence of agreement, all profits and losses are shared equally between the partners. This means that you, as a partner, could be responsible for the debts of the partnership, even if you have not been aware of them and even if your partner has been acting in a way that you would not approve of. Unlike a company, there is no formal management structure laid out in a partnership and so everybody has joint responsibility.

Terminating a partnership

The partnership can be brought to an end by any of the partners notifying the others of their intention to terminate the partnership. It can be very difficult to retire from a partnership. In general, debts incurred by the partnership whilst you are a partner are still your responsibility, even after your retirement. We often advise our clients to explicitly agree, in advance, how the partnership can be bought to an end.

The partners themselves are responsible for the costs and expenses of their business, including the costs of any litigation. If the partnership is successfully sued, the partners are responsible for meeting the costs of that claim. A partnership does not have the same protection for its members that a company limited by shares does.

Partnership Agreement

We therefore strongly recommend that you prepare a Partnership Agreement before entering into a partnership. The following matters are often dealt with:-

  • Rights and responsibilities of the parties;
  • Decision making – will all parties votes count equally?;
  • Sharing of profit and losses – should somebody who has invested more receive more?;
  • Termination – what happens when somebody wants to leave, or retire, or even dies?;
  • Bringing new people into the partnership.

Of course, you are free to agree whatever you like between yourselves and only in the event of an agreement being silent will the Partnership Act apply.

In summary, we always recommend a Partnership Agreement, a careful understanding of each party’s rights and responsibilities, as well as careful consideration about the form of your business arrangements.

You can speak to the Corporate and Commercial Team at Taylor&Emmet to find out more about setting up a partnership. We can assist you with the establishment, running and dissolution of a partnership. We will get to know you and your business so we can offer you advice tailored for your needs. To get in touch contact Rob Moore on 0114 218 4051 or at rob.moore@tayloremmet.co.uk.

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