A partnership is run by joint owners who also have joint responsibilities and legal obligations. Virtually any type of business can be operated as a partnership.
Partnerships typically will include between two and twenty people but are often larger. There can be more flexibility in ownership than available under a shareholding model in limited companies. However, most larger partnerships will incorporate and become a Limited Liability Partnership or a Limited Company.
In the absence of written arrangements, legally there are some basic default provisions for how partnerships are governed but it is generally accepted that having a suitable, well-drafted partnership agreement is wise. We can help draw up and advise on changes to such agreements for the partnership as whole. Alternatively we can also advise individual partners seeking advice which is independent from the partnership.
As partners are generally both owners and employees of the business, they are therefore also subject to employment law. The partnership agreement should also cover relevant aspects of laws on discrimination and tax.
Apart from help in organising the ownership and strategic issues of the partnership we can also advise on any legal questions, large or small, involved in the day to day operations of the business.
In the absence of a partnership agreement, the partnership will be governed by the Partnership Act 1890 which imposes some strange obligations on the partners and is not really relevant to the modern business world. Under this Act it is even possible to inadvertently form a partnership, a Partnership at Will, without intending to be in business with others.
Planning to join a partnership or set up your own?
From the outside a partnership may seem to be like a club of like-minded business people but may sometimes appear like a secret society with demanding and possibly ambiguous rules about who can join. Partners can be selective about who joins them, but they are not allowed to discriminate on the grounds of race, sex, gender, religion, age, maternity or sexual orientation. The partnership agreement should be compliant with the current legal requirements of employment law to avoid discrimination.
Disputes between partners?
Decision making in partnerships is sometimes fraught with difficulties because it can depend on many people reaching an agreement. Rather than a voting system, many partnerships work on a consensual basis, with partners willing to defer to each other. If there is limited consensus then these disagreements can lead to the partnership failing.
Even with a good partnership agreement it can sometimes be difficult to avoid serious argument. We can assist with the services of the Dispute Resolution team whether as a sounding board, a critical friend, an advocate or potentially assisting with the draconian step of terminating membership of the partnership and all that would normally entail.
If for no other reason than to reduce the likelihood of dispute, it is vital to have a partnership agreement that clearly details each partner’s responsibilities and obligations and the profit sharing arrangements going forward. The agreement should cover partner responsibilities and obligations, conduct, profit sharing, arrangements for new partners and leavers, expulsion, retirement, decision-making, accounting, funding, sickness, etc.
Some of the most complex aspects of a partnership can relate to property issues.
Our commercial property team can advise on a range of property issues faced by partnerships including leases, guarantees and covenants, property ownership within the partnership or in separate arrangements outside, transfers between partners.
How we can help
Our team works across a range of specialisms and can offer expert legal advice for partners and partnerships – whether you are planning to join a partnership as an equity or salaried partner, or form your own. Atherton Godfrey is itself a partnership.
We can also help with:
- Limited Liability Partnership LLP
- Family Businesses
- Terms and conditions of business
- Website statutory disclosures
- Debt recovery
- Succession planning – Wills and probate
- Succession planning – Tax and trusts
- Leases and property
If you would like guidance on forming or joining a partnership, or would simply like more information about partnerships, whether from the viewpoint of the organisation as whole or of an individual partner, please contact our team today.