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Forming Business Partnerships

19th May 2016

General partnerships are probably the oldest form of business venture, and are still in wide use today.

Partnership is legally defined as the ‘relation between persons carrying on a business in common with a view to profit’. Interestingly, if that relationship exists, then a partnership exists – even if the partners don’t realise it. So, you can form a partnership without knowing it.

If that happens, the rules of the partnership will be governed by the Partnership Act 1890. Though these rules were designed to strike a fair balance, it is not a good idea to rely on them. The Partnership Act is over a 100 years old, and in many ways is not appropriate for a modern day business. If you are starting a business with someone else, it is highly advisable to take professional advice and have a written agreement setting out your own rules. These rules will take precedence over those in the Partnership Act, and will help to avoid problems in the future.

Almost anybody over 18 can be a partner, including companies. Spouses can be partners with each other, which can be particularly important as regards taxation. Care is needed though, as HM Revenue & Customs may argue the arrangement is a sham if one spouse plays no active part in the business and has not invested in it.

Usually, a partnership can choose its own name, although a name confusingly similar to another business in the same, or a similar, field should not be used, and the use of certain names will be prohibited. These are either names which suggest a connection between the business and government or, for instance, with certain professions or institutions.

Usually partnerships must state the names of each partner, and an address in the United Kingdom at which each may be served with any documents. This must appear on all stationery, though this requirement does not apply to partnerships of more than 20 people, provided that a list of all the partners is available at the principal place of business.

Unlike a company, a partnership has no separate legal identity which means that it cannot own assets. Instead, assets must be held in the names of the individual partners, and any security given to the bank for a business loan will be underwritten by the partners personally. So again, care is needed to avoid incurring expensive liabilities without realising it.

Robert Enticott. Partner and Head of business services.

General, George Ide, News
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