Business Partnerships

Partnership Agreements and the responsibility of partners for the debts of a partnership

Partnerships and Limited Liability Partnerships


You do not need to do anything to form a business partnership. That can be the danger. If two or more people go into business together with a view to profit, their relationship to each other and the people they deal with will be governed by the Partnership Act. This Act may not contain the intended intentions of your business partnership, and so it is important to make a formal partnership agreement, which will then replace the provisions in the Partnership Act.

The essential elements of a partnership are:

• All partners share the risks and rewards of the partnership business.
• Each partner is entitled to share the net profits of the partnership.
• Partners are jointly and severally responsible for all the debts and obligations of the partnership without any limit, including loss and damages arising from wrongful acts or omissions of their fellow partners and potential liability to third parties.
• Partners have equal rights to make decisions which affect the partnership or the business assets.
• All partners share the ownership of the assets of the partnership business.

In the vast majority of cases, the ‘fall back’ provisions of the Partnership Act 1890, which will apply where nothing else has been agreed, do not suit. The partners should always therefore make a partnership agreement, in which to set out the arrangements which they have decided upon for the running of their business.

The main advantage of two or more people carrying on business as partners is the ease of setting up and absence of formality.

The major disadvantage, however, is that all partners are personally liable for the debts and obligations of the partnership and their fellow partners.

This will not necessarily be the case if you carry on business as a limited liability partnership or as a limited liability company.

Ease of creation and operation are not so applicable to a limited liability partnership, which is much more like a limited company than a partnership. A LLP does, however, have the very great advantage in that it is a legal entity, and it will be the LLP rather than the individual partners who are responsible for debts and liabilities.

A LLP must be registered at Companies House in much the same way as a limited company, and certain formalities such as filing accounts complied with.

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