I see no (Partner)ships

Monday 16th August 2021

Many businesses trade as partnerships, including a lot of husband and wife and family businesses. There are advantages and disadvantages to this type of business structure.

Business Partnership

Whilst it means that a lot of the business information can be kept private – partnerships do not have to file accounts with Companies House, each individual partner has to file their own tax return showing their share of the partnership income with HMRC – it does mean that the partners, like sole traders, have personal liability for all losses of the business. 

Partnership Difficulties

Generally speaking most partners do not have any difficulties until either a partner dies or there is a falling out. The difficulty usually arises because there is no partnership agreement in place. You do not have to have a written agreement to have a partnership but if you do not then the Partnership Act 1890 governs what happens in the partnership and it contains rules that you might not actually want to apply.

Under the 1890 Act a partnership will come to an end just by one partner serving notice on the others – it does not say how much notice or what happens if the other partners want to carry on. Following dissolution of a partnership the partners only have authority to take action to wind the partnership up and the partnership assets have to be used first in settling the liabilities of the partnership and then the excess is distributed to the partners. The 1890 Act provides that for the other partners to be able to buy the leaving partner out there should be a partnership agreement in place that lets them do that.

No Partnership Agreement?

Not having a partnership agreement in place can also mean that there are unintended consequences if partner dies because the death of a partner results, under the 1980 Act, in the automatic dissolution of the partnership.

Whether you have been running your partnership for years or are just starting one it is important to have a partnership agreement in place. For more information or to get your partnership agreement drawn up please contact Hannah Scott at h.scott@waldrons.co.uk