In modern commerce, there is one area of law that in a changing commercial environment has not been significantly updated in over a century. Believe it or not, the definition of the word "partnership" is found in an Act of Parliament that is over 120 years old - The Partnership Act 1890.
What is a Partnership?
First of all, the common sense position is that if you are trading through a limited company then that is definitely not a partnership. Confusion sometimes occurs however when the owners of a limited company wrongly describe themselves as partners. They are not partners - and partnership law does not apply to such people.
Owners of a limited company should be described as shareholders or members of that company.
If you have set up in business and enter into a joint venture with another person with the intention of making it a profitable business, then you are involved in a partnership - and partnership law applies. Each partner would make equal contributions when entering a partnership. This is true even if there is no written partnership agreement.
A partnership (unlike a limited company) does not confer any limitation of liability on the individuals who form the partnership. Each partner is responsible for the debts and liabilities of the partnership. Therefore, if you enter into a partnership with another person you expose all of your personal assets (such as your home) to partnership creditors. A partnership might, therefore, be considered to be a dangerous legal vehicle in which to conduct a business.
There is a newer form of partnership known as a Limited Liability Partnership (LLP). As the name suggests this form of partnership affects the members/partners protection from partnership creditors.
If you do choose partnership LLP as the structure for your business venture, we can support you by preparing a business partnership agreement which contains rules around what each partner can and cannot do without the other partner’s permission. It also removes some of the more onerous provisions of the Partnership Act that would otherwise automatically apply to your partnership relationship.
Partnerships are complex legal relationships and we would advise obtaining professional legal guidance prior to the commencement of trading.
We can help you with any of the following: