LAW

Law

Law

A partnership is a way of establishing a business relationship between several parties who agree to work together and to share in profit and also in liability. It can be covered by a standard agreement, you can have one specially drafted, or a standard form can be adapted. A solid partnership agreement can make all aspects clear to all parties. There are two types of partnership known as 'Partnership' and 'Limited Liability Partnership'. In a standard partnership the individual partners are benefited if the business makes a profit and are liable if it makes a loss. Their personal possessions are therefore at risk (homes, money etc.). In a Limited Liability Partnerhsip (LLP) the liability is limited, and so is safer for the partners who are not personally liable for losses unless they are shown to be trading recklessly. The LLP requires registration at Companies House and has a more strict administration to meet Companies House rules including regular publishing of accounts (annual). Standard forms can be used to establish either kind of partnership, or a special agreement can be drawn up by a solicitor.

Partnerships have certain default characteristics relating to both (a) the relationship between the individual partners and (b) the relationship between the partnership and the outside world. The former can generally be overridden by agreement between the partners, whereas the latter generally cannot be.

The assets of the business are owned on behalf of the other partners, and they are each personally liable, jointly and severally, for business debts, taxes or tortious liability. For example, if a partnership defaults on a payment to a creditor, the partners' personal assets are subject to attachment and liquidation to pay the creditor.

By default, profits are shared equally amongst the partners. However, a partnership agreement will almost invariably expressly provide for the manner in which profits and losses are to be shared. Each general partner is deemed the agent of the partnership. Therefore, if that partner is apparently carrying on partnership business, all general partners can be held liable for his dealings with third persons.

By default a partnership will terminate upon the death, disability, or even withdrawal of any one partner. However, most partnership agreements provide for these types of events, with the share of the departed partner usually being purchased by the remaining partners in the partnership. By default, each general partner has an equal right to participate in the management and control ...