Partnerships are formed when two or more people carry on a business with a view to making a profit. There does have to be any agreement in writing and the question of whether or not there is actually a partnership in existence is always a question of fact.
If you are considering going into business with someone as partners it is essential that you take legal advice on the consequences of being involved in a partnership. Potentially you are making yourself financially and legally responsible for a whole range of liabilities and duties and it is crucial that you are fully aware of those from the outset.
It is almost always essential that you enter into a written partnership agreement as this will enable you to agree with your business partner what will happen in any given situation including the following :
- How the profits will be shared
- What will happen if one of you has long term illness or cannot carry on
- Who will own the name of the firm and its goodwill should you wish to go your separate ways
- What happens if one partner does not pull his weight
- If one of you wishes to leave the business
If you have a disagreement with your partner the Court will apply the terms of your partnership agreement in resolving that dispute. If you do not have a written agreement then you have a “partnership at will” and the terms and obligations which you have for each other as partners is set out in the Partnership Act 1890. Applying the provisions of this Act will often work unfairly against one of the partners and result in lengthy and costly legal proceedings which could have been minimised had a suitable written partnership agreement been signed at the commencement of the business.
In addition to a partnership under the 1890 Act it is now possible to set up business as a “limited liability partnership”. This is very different to a traditional partnership, it offers the partners a limit to their liabilities which is not available to them under the traditional arrangement.