What is a partnership?

A ‘partnership’ is defined as the relation which arises between two or more persons carrying on a business in common with a view to profit (section 1, Partnership Act 1890). The Courts will looks at the facts to decide whether a partnership exists and the parties cannot simply determine this for themselves – for example, if the parties decide that one of them is an ’employee’ or ‘freelance’ and not a ‘partner’ the Courts may still decide, based on the facts, that the facts exist for that person to be declared a ‘partner’. Normally the relationship is governed by a contractual agreement (a partnership agreement) but that is only an indication of the relationship and not the deciding factor.

There is no requirement in law for partners who are carrying on a business together to have a partnership agreement. A partnership agreement is a bit like a Will, while most people know that it is important to make one, it often gets left on the to-do list and the business carries on without the protection that a partnership agreement provides. A partnership agreement is a good way of setting out what will happen between the business owners in various scenarios that naturally occur in the life of a business.

Without a partnership agreement the business partners have to look to the Partnership Act 1890 – one of the oldest laws still in common use (which usually means having to consult a business solicitor). It can reduce the possibility of expensive and acrimonious disputes in the future.

A partnership agreement does not need to be registered anywhere once it has been signed by the partners.

Personal liability

Unlike a limited liability partnership, under English law, a general partnership has no separate legal personality, which means that it cannot own assets or grant security over them. This also means that partners are sued in their personal names and are jointly personally liable for all the debts and losses of a partnership.