Will You Be My partner?
It’s surprisingly easy to become someone’s business partner. Legally a partnership exists where “two or more persons carry on business in common with a view to profit”. So if you and your friend carry on a business activity, and hope to make some money from it, you may well find that you have started a partnership. It really is as simple as that.
Because it is so simple, many people can find that they are in a business partnership without having thought about it, or considered whether that’s what they really want, or how the affairs of the partnership should be arranged.
So, whilst there is no legal need for a written partnership agreement, it is an outstandingly good idea to have one. If you don’t have one, then your partnership will be fully governed by the Partnership Act 1890. It is unlikely that the terms of an 1890 Act of Parliament will completely suit your needs today.
One big risk that many people don’t appreciate is your personal liability. In law, and unlike a limited company, or a “limited liability partnership”, an ordinary partnership is not a separate legal entity. It consists only of the individual partners in the business. One of the consequences of this is that partners generally have unlimited liability, not only for what they do, but for what the other partners do as well. Each partner can be “jointly and severally” liable for the actions of every other partner. So if the partnership is sued, an individual partner can be fully liable, even if it was not his or her negligence that caused the problem
A recent case in the Court of Appeal provided a warning to partnerships. The court held that a partner was jointly and severally liable to a third party for a breach of duty of another partner even though the breach of duty occurred after the partner had resigned from the partnership.
It is possible to reduce these risks, and to limit each partner’s authority, by having a written partnership agreement, to record the intentions of the partners on financial and business issues. It can also say what will happen if you fall out with your partners, or what happens when you die or want to leave the business. Anyone in a partnership would be well advised to take advice and enter into such an agreement.
Robert Enticott. Partner and Head of business services
Business, General, George Ide, News