Partnership Overview in United Kingdom
A partnership is a business that is owned by two or more people. Partnerships are common in shop ownerships, e.g., Sam and Jane’s Tea Shop, Pete and Sons Mechanics; and professional practices, e.g., dentists, accountants, lawyers, doctors. Partnerships are common in both the professions and in retail. Many service providers are in partnerships so that they can provide a complete service (e.g. different specialisms in a veterinary practice).
When setting up a partnership a Deed of Partnership will normally be drawn up. This will lay down all the rules of the business, such as
- How profits and losses are to be shared out between the partners;
- The duties and responsibilities of the partners;
- How new partners will be introduced;
- The rules for settling disputes;
- Who is going to provide the capital (money) to start up the business.
If there are any rules that are not laid out in the Deed of Partnership it is possible to refer to the Partnership Act of 1890. This sets out all the rules and regulations of running a partnership. There is no requirement to draw up a Deed of Partnership – it is a good idea if the partners want to avoid disputes, but not necessary. The 1890 Act basically splits everything down the middle. If partners think this is fair, then they may decide not to draw up a Deed of Partnership.
Sleeping partners can be introduced to a partnership and they will have limited liability. This means that if a business runs up large debts they will only lose the money they put into it and their personal possessions are safe. They will only have limited liability as long as they take no active part in the running of the business. However, there must always be at least one partner with unlimited liability.
Advantages of a partnership
Setting up a partnership up is relatively easy as two people just have to agree to share the decisions, or start to work together as joint owners of a business. If this happens, they are automatically partners and share both responsibility and profit.
As there is more than one owner, there will be more money available to help set up the business.
New partners can bring in new skills that will help the business make more profit.
You can share out the responsibilities between the partners. This means that you are not responsible for running all of the business. the business experiences financial difficulties there will be other people to share the costs with you. This reduces the risk of losing money
Expanding the business can be made easier as new partners can be introduced. They may put money into the partnership which could be used for buying a new building or updating machinery. Partners may also be introduced because they bring new or specialist skills to a business.
Financial affairs can be kept private from others as you don’t have to publish your accounts. Many people do not like others to know how much they earn.
Disadvantages of a partnership
The profits have to be shared amongst all the partners.
You do not have as much control over the business as there are a number of owners. All of the partners will want to have a say in important decisions and this may lead to you being overruled.
Deeds of partnership have to be rewritten if a partner leaves or dies which can take a lot of time and cost money.
There can be disagreements between the partners. Particularly difficult as partners are bound by any commitments made by a single partner, even if they did not agree to it.
The partners have unlimited liability so they could lose all of their personal possessions if the business goes bankrupt (not true for sleeping partners as they have limited liability).
Lender as postponed creditor in the Partnership
Liability and Rights in Respect of Outsiders in the Partnership: Introduction
Dissolution of Partnership: The insolvent partnership
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