A partnership is a flexible business structure that allows two or more persons to carry on business together with a view to profit. Unlike companies, partnerships require minimal formality to establish and operate. They are popular for professional practices (solicitors, accountants) and small businesses where owners want direct involvement without corporate regulation.
Partnership is the relation which subsists between persons carrying on a business in common with a view of profit.
Unlike a company, a general partnership has NO separate legal personality. The partnership is simply the aggregate of its partners. This means: (1) the firm cannot own property in its own name - partners own as co-owners; (2) the firm cannot sue or be sued in its own name (though procedural rules allow actions in the firm name); (3) partners are personally liable for all partnership debts.
Partnership can arise WITHOUT express agreement. Courts look at the substance of the relationship. Sharing profits is PRIMA FACIE evidence of partnership (s.2(3)), but receiving a share of profits as wages, debt repayment, or annuity does NOT by itself make someone a partner.
Unlike companies, there are NO formalities for creating a partnership. No registration, no written agreement, no filing requirements. A partnership can arise from conduct alone - if two people start doing business together with a profit motive, they may be partners whether they realise it or not.
While not required, a written partnership agreement is STRONGLY advisable. It sets out the terms on which partners operate: profit shares, decision-making, capital contributions, and what happens on dissolution. Without an agreement, the default rules in the Partnership Act 1890 apply.
A well-drafted partnership agreement should cover: firm name, business nature, capital contributions, profit/loss sharing, drawings, decision-making procedures, admission/retirement of partners, non-competition clauses, dispute resolution, and dissolution provisions.
Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership. Acts done in the usual way of business bind the firm UNLESS the partner has no authority AND the third party knows this or does not know/believe them to be a partner.
In a TRADING partnership (buying and selling goods), partners typically have implied authority to: sell partnership goods, buy goods for the business, receive payment, employ staff, borrow money, and give receipts. In NON-TRADING partnerships (e.g., professional firms), authority to borrow may not be implied.
An act relating to the business of the firm done in the firm name, or in any other manner showing an intention to bind the firm, by any person authorised to do so binds the firm and all the partners.
Even if partners agree INTERNALLY to restrict one partner's authority, this does not affect third parties who deal with that partner in good faith and without notice of the restriction. The firm will be bound.
Partners are JOINTLY liable for partnership debts (s.9) and JOINTLY AND SEVERALLY liable for wrongs (torts) committed by partners in the course of business (s.12). This means a creditor can sue all partners together, or sue any one partner for the full amount.
Anyone who represents themselves, or knowingly allows themselves to be represented, as a partner is liable to anyone who gives credit to the firm on the faith of that representation.
[1949] 2 KB 397
A retired partner's name remained on firm stationery without his knowledge. A creditor sued him for partnership debts.
The retired partner was NOT liable. Holding out under s.14 requires the person to have represented themselves OR knowingly allowed the representation. He had no knowledge.
Holding out requires knowledge and acquiescence - mere failure to ensure name removal (without knowledge it was still used) is insufficient.
A retiring partner should: (1) ensure the partnership agreement allows retirement; (2) give notice to all existing creditors (otherwise remains liable for future debts to them under s.36); (3) advertise retirement in the Gazette to protect against future creditors; (4) seek novation from major creditors.
Partnership is a relationship of UTMOST GOOD FAITH (uberrimae fidei). Partners owe fiduciary duties to each other - duties of loyalty, honesty, and fair dealing that go beyond ordinary contractual obligations.
| Duty | Section | Requirement |
|---|---|---|
| Render accounts | s.28 | True accounts and full information on partnership matters |
| Account for benefits | s.29(1) | Account for any benefit from partnership transactions or use of firm property/name/connection |
| Account for profits | s.29(1) | Account for profits from competing business without consent |
| No competition | s.30 | Cannot carry on competing business without consent of all partners |
Partners are bound to render true accounts and full information of all things affecting the partnership to any partner or his legal representatives.
Every partner must account to the firm for any benefit derived by him without consent from any transaction concerning the partnership, or from use of the partnership property, name, or business connection.
[1967] 1 AC 233
A partner in a petrol station business secretly acquired the sole agency rights for the area in his own name.
He was liable to account for the profit. The opportunity came to him in his capacity as partner and he exploited the partnership's business connection.
Partners must account for benefits obtained using partnership property, name, or business connection - even if obtained in their personal capacity.
If a partner, without the consent of the other partners, carries on any business of the same nature as and competing with that of the firm, he must account for and pay over to the firm all profits made by him in that business.
Partnership property is property that belongs to the firm rather than to individual partners personally. It includes: property originally brought into the partnership, property acquired on account of the firm, and property acquired for partnership purposes with partnership money (s.20-21 PA 1890).
Partners hold partnership property as TENANTS IN COMMON (not joint tenants). Each partner has a proportionate share in the partnership assets as a whole, but no individual partner can claim a specific asset.
Land used by a partnership is treated as personal property for partnership purposes (s.22 PA 1890) - even though it is technically real property. On death, it passes with the partnership share, not as real estate to heirs.
A partnership may dissolve: (1) by agreement between partners; (2) automatically on certain events (expiry of term, completion of venture, death, bankruptcy); (3) by notice if partnership is at will; or (4) by court order on specified grounds.
A court may dissolve a partnership on application by a partner on grounds including: partner's permanent incapacity, conduct prejudicial to the business, persistent breach of agreement, business can only be carried on at a loss, or whenever the court considers it just and equitable.
After dissolution, the partnership must be wound up: outstanding business completed, debts collected, assets sold, liabilities paid, and surplus distributed. Partners' authority continues for winding up purposes (s.38). Assets are applied first to pay debts, then to repay capital, then surplus shared per profit-sharing ratio.
A limited partnership (LP) is a partnership with at least one GENERAL partner (unlimited liability) and at least one LIMITED partner (liability limited to capital contribution). LPs must be registered with Companies House.
A limited partner who takes part in management of the partnership business becomes FULLY liable for all debts incurred while they participate, as if they were a general partner. This is the key trade-off for limited liability.
LPs are commonly used for: private equity and venture capital funds (investors as limited partners, fund manager as general partner), property investment, and collective investment schemes. The structure allows passive investment with limited liability.
An LLP (created under the Limited Liability Partnerships Act 2000) is a BODY CORPORATE with SEPARATE LEGAL PERSONALITY. It combines the organisational flexibility of a partnership with the limited liability of a company. Members are not personally liable for the LLP's debts.
| Feature | General Partnership | LLP |
|---|---|---|
| Legal personality | None - aggregate of partners | Separate legal entity |
| Liability | Partners personally liable | Members not personally liable |
| Formation | No registration required | Must register at Companies House |
| Accounts | No filing requirement | Must file accounts at Companies House |
| Designated members | Not applicable | At least 2 required |
| Governing law | Partnership Act 1890 | LLPA 2000 + Companies Act provisions |
Every LLP must have at least 2 designated members who have additional legal responsibilities: signing and filing accounts, appointing auditors (if required), acting on behalf of the LLP in certain matters. If an LLP has fewer than 2 designated members, ALL members are treated as designated.
Despite being a body corporate, an LLP is TAX TRANSPARENT - it is not taxed as a separate entity. Profits are taxed in the hands of individual members as if they were partners in a general partnership. This is a key advantage over trading through a company.
LLPs are particularly suitable for: professional practices (law firms, accountants) wanting limited liability; businesses where members want flexible profit sharing; joint ventures between companies; and any business where partners want protection from each other's negligence.