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Partnership Act 1890

A partnership is formed whenever two or more people set up in business together with a view to share profits and losses and they do not incorporate, either as a limited company or an LLP.  A partnership is formed whether they intend to form a partnership or not.

These inadvertent partnerships are referred to as Partnerships at Will and are governed by the Partnership Act 1890.

Even if the partners intend to form a partnership, all partnerships which are not LLPs or Limited Partnerships are General Partnerships and regulated by the Partnership Act 1890.   If any of this information leaves you feeling uncertain, you should ask to speak to a partnership solicitor.

The issue with partnerships under the Partnership Act 1890 is that the act is rather vague and not helpful at all to running a business.  There are some aspects of the 1890 Act which many of those in partnership do not realise, for example:

• A partner is not required actually to do anything towards running the business; i.e. they do not have to turn up to work.
• A partner shares equally in the profits of the business irrespective of the amount of time or effort he or she has put into the business.
• There are no set number of days holiday.
• A partner cannot retire. If one partner decides to leave or dies, the partnership has to be dissolved, the assets divided up and a new partnership (or other business) formed. This can be time-consuming, complicated, and expensive.
• A partner cannot be expelled.

For these reasons we always recommend that all partners enter into a Partnership Agreement or Deed to regulate these matters and to allow the partnership to continue on the exit of one partner.

A Partnership does not have separate legal form; it does not exist as a separate legal entitly, unlike an LLP or limited company.  The individual partners are jointly and severally liable for all the liabilities of the partnership.

From a tax viewpoint this can be beneficial to the partners as they are taxed as self employed (Schedule D) rather than employees (Schedule E).

In addition to equity partners who own a share of the capital of the partnership, there can be salaried partners (Schedule E) who are partners but are paid a salary.  Salaried partners will need an indemnity from the equity partners as they take on joint and several liability but do not share in the profits of the firm.  Alternatively there are fixed equity partners (Schedule D) who take a fixed share of the profits in cash terms.  They too will need an indemnity.

If you are in need of Partnership Advice contact one of Ralli Partnership Law's expert solicitors now or complete the contact form.