Strangely enough the main legal framework that governs partnerships is still encompassed in an Act of Parliament over 127 years old, namely the Partnership Act 1890 (the Act).
The definition of what it means to be “in partnership” is found at paragraph 1(1) of the Act where the Act states that a “Partnership is the relation which subsists between persons carrying on a business in common with a view of profit”. This can include relatively new businesses where two friends decide to begin importing goods and selling them for a profit (but without starting a company). The Act will also include informal business relationships for example when two individuals pool together their savings to buy a dilapidated building and with a view to redeveloping the building into flats to sell at a profit.
Many people believe that they are experienced in the ways of business and but fail to formally record a number of key details when they enter into a partnership such as:
• Who exactly they are in partnership with
• The liabilities of each respective partner
• What profit must go through the partnership accounts
• How a partner may leave the partnership and what happens to the partnership monies on dissolution
A common issue that can arise between individuals is when a new business partnership is doing well financially but the partners have not recorded in a written agreement that they are in a partnership. One partner may be under the impression that they are doing the majority of the work for the partnership and resentment can build. The problem is that without a written partnership agreement there can be a misunderstanding about how much time each partner must dedicate to the business and one partner ends up doing the majority of the work. This can be especially galling when it comes to the end of the month and the profits are split 50/50!
Setting up a partnership with a friend can be exciting but as experienced Partnership Law solicitors we can advise you on the benefits of having a well thought out Partnership agreement and let you know the risks involved before a dispute arises.
Unlike companies that have a separate legal entity the partners in an informal, unwritten partnership will generally have unlimited liability. If you are unsure of the risks involved, we can assist you in the drafting a robust partnership agreement that will give you piece of mind and put you on the path to success.
