Trading as a Partnership

A partnership automatically arises where two or more people agree they will share responsibility and decision-making for a business, and proceed to do so. Surprising, there does not need to be a formal written contract; or indeed anything in writing at all. An oral agreement can suffice to create a partnership, and the law will imply provisions into the agreement in the absence of express provision. The law also imposes a duty of utmost fairness and good faith in partners’ dealings with each other.

Advantages

Partnerships work well where there is symbiosis – where the skills and contributions of each partner complement each other and where fundamental decisions are reached following full and considered debate. Partnerships are said to have more credibility in the business community than sole traders, probably because professionals, such as accountants, solicitors, doctors and dentists, have traditionally traded as partners.

Disadvantages

In our experience, enormous legal bills can arise from partnership disputes, often stemming from personality clashes overriding business sense. You should be very wary about with whom you enter into partnership, as in general you will be personally liable for business losses of the partnership, even if these were incurred by a partner acting without actual authority from the other partners.

It is essential that you have a partnership deed drawn up by a suitably experienced solicitor, which will at the least define the commencement date of the partnership, the name of the partnership, who the partners are and the scope of the partnership. It will also modify the terms the law implies in the absence of agreement, regulate dealings between partners and outsiders and set out covenants and profit/ loss sharing ratios for each partner. A word of caution is advisable here – partnerships (particularly medical partnerships) are specialist arrangements and having a badly drawn up partnership deed can in many circumstances be worse than having no partnership deed, as it is equally likely to result in protracted and expensive litigation.

The maximum number of partners is 20, with some exceptions, such as professional partnerships.

Our services

If you and others decide to start trading together as partners, for a relatively modest fee we can advise you on compliance with all the legal and practical requirements, minimise your potential liability by use of terms and conditions of business and help you avoid the risk of being sued for ‘passing off’ or prosecuted by Trading Standards.

Crucially, we can also prepare partnership deeds that will not only perform the functions set out above, but which will put into a legally binding format the very essence of your new business structure and aspirations.

When you have a properly drafted partnership deed from the outset, you will find that it can be adapted speedily and successfully to cope with the growth and changes in your partnership for many years to come.