Definition

1. A partnership exists where two or more people join together in a business venture with a view to profit.
2. The main legislation referred to is the Partnership Act 1890.
3. A partnership is often referred to as a firm.

Main Advantage

1. Additional working partners can join.
2. New partners may bring additional investment.
3. This can help the business expand.

Formation

• No formal legal procedure is necessarily required.
• A partnership can arise simply through agreement between the parties.
• A partnership deed commonly sets out:
  • Names of partners.
  • Firm name.
  • Capital contributed by each partner.
  • Profit/loss sharing ratio.
  • Accounting arrangements.
  • Duration of the partnership.

Rights & Duties

If there is no alternative agreement, the Partnership Act provides that:

1. The firm accepts liabilities incurred by a partner in conducting the firm's business.
2. Partners may participate in management.
3. Partners generally do not receive salaries for their work but may make drawings against expected profits.
4. Day-to-day disputes can generally be settled by majority vote.
5. Fundamental changes require consent of all partners.
6. A new partner cannot be introduced without consent of all existing partners.
7. Profits made outside the business may have to be given to the firm unless otherwise agreed.
8. A partner cannot transfer their ownership interest without the consent of all partners.

Partners as Agents

1. Each partner is generally an agent of the other partners.
2. A partner acting within their authority can bind the partnership.
3. If a partner acts outside their authority, they may be personally liable unless the other partners accept the action.

Liability of Partners

1. Partners are jointly liable for debts and obligations incurred by the firm.
2. Liability is unlimited.
3. Personal wealth may therefore be at risk.
4. If one partner cannot pay their share of a partnership debt, the remaining partners may have to meet that liability.
5. A person may take action against the partnership or an individual partner for wrongs committed by the partnership.
6. A retiring partner must notify people they have dealt with to end their liability appropriately; the notes also refer to notice in the London Gazette.
7. If an infant is a partner, liability is accepted by the other partners.

Sleeping Partners

1. A sleeping/dormant partner:
   • Contributes capital.
   • Receives a share of profits.
   • Does not actively participate in running the business.
2. Despite being inactive, they remain liable for business debts with the other partners.

Dissolution

A partnership may end through:

1. Expiry of an agreed period.
2. Mutual agreement of all partners.
3. Death or bankruptcy of a partner.
4. Continuation becoming unlawful.
5. Court order/judgment.

A court may dissolve a partnership where, for example:

1. A partner is permanently of unsound mind.
2. The business can only be operated at a loss.