Partnership

Definitions

Partnership: An association of two or more people (partners) formed for the purpose of carrying on a business. Unlike an incorporated company, a partnership does not have a legal personality of its own and, generally, partners are liable for the debts of the firm.

Types of Partners

1. General Partners: Partners who are fully liable for the debts of the partnership.
2. Limited Partners: Partners who are only liable to the extent of their investment in the partnership.

Types of Partnerships

• General Partnership: Comprises only general partners.
• Limited Partnership: Consists of both general and limited partners and is governed by the Limited Partnership Act 1907.
• Limited Liability Partnership (LLP): Governed by the Limited Liability Partnership Act 2000, it allows some categories of business partnerships to claim limited liability similar to that of limited companies.

Other Key Terms

• Partnership-at-Will: A partnership for which no fixed term has been agreed, and any partner may end the partnership at any time, provided that notice is given to all other partners.
• Nominal Partners: Individuals who allow their names to be used for the benefit of the partnership, usually for a reward, but not for a share of the profits. They are not legal partners.
• Partnership Agreement: A document that outlines the terms and conditions governing the partnership.

Examples

1. General Partnership Example:

   • John and Jane decide to start a bakery. Both contribute capital, share management duties, and are equally liable for any debts incurred by the bakery.

2. Limited Partnership Example:

   • Alice contributes $50,000 as a limited partner to a real estate venture managed by Bob, a general partner. Alice’s liability is limited to her $50,000 investment, whereas Bob is fully liable for any additional debts.

3. Limited Liability Partnership (LLP) Example:

   • Three architects form an LLP to provide architectural services. Each partner’s liability is limited, protecting their personal assets from the firm’s debts.

Frequently Asked Questions (FAQs)

What is the main difference between a general Partner and a limited Partner?

General Partners are fully liable for the debts of the partnership, while Limited Partners are only liable up to their invested amount.

What governs partnerships in the UK?

Partnerships in the UK are primarily governed by the Partnership Act 1890, the Limited Partnership Act 1907, and the Limited Liability Partnership Act 2000.

Can partnerships be formed without a formal agreement?

Yes, but it is advisable to have a Partnership Agreement to outline each partner’s roles, contributions, and profit-sharing proportions.

What happens if a partner leaves a partnership-at-will?

Any partner may leave a partnership-at-will at any time, provided they give notice of their intention to the other partners.

What is a nominal partner’s role?

A Nominal Partner allows their name to be used for the partnership’s benefit, usually in return for a reward, but they are not legal partners and do not share in the profits.

Related Terms

• Limited Liability Partnership (LLP): A partnership where the partners’ liabilities are limited, similar to shareholders in a limited company.
• Partnership Agreement: A formal agreement detailing the roles, responsibilities, and obligations of each partner in the partnership.

Online Resources

1. Companies House - Partnerships
2. Incorporated Legal Practices

Suggested Books for Further Studies

1. “Partnership Law” by Geoffrey Morse
2. “Partnership and LLP Law” by Elspeth Deards
3. “Business Partnerships: Law, Practice and Precedents” by Mark Blackett-Ord and Sarah Haren

Accounting Basics: “Partnership” Fundamentals Quiz

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