- 27th December 2014
- Posted by: Seatons Solicitors
- Category: Articles, Commercial Law
Starting a business can be a daunting task and it is always worth seeking legal advice before embarking on such a venture. When two or more persons run and own a business together, this is known as a partnership and recent government statistics suggest that there are as many as 435,000 partnerships actively running in the UK today. Clearly then, partnerships are a fundamental aspect of business and a general understanding is crucial should you decide to form one.
A partnership exists where two or more persons agree to run a business together with the intention of making a profit. The term ‘partnership’ therefore describes nothing more than a business relationship based on an agreement between the parties. There are no formalities which need to be satisfied, such as registration with a public body, and this therefore means that partnerships can potentially be formed in particularly informal circumstances. It is subsequently common for many individuals to enter into a partnership without originally intending to do so.
If there is no written partnership agreement in place, the partnership is governed by the Partnership Act 1890; an old piece of law which applies universal rules that each business is legally bound to. Whilst this law does provide a security net for many individuals, it can become restrictive and create disagreeable situations. For example, if there is no evidence to a contrary agreement, partners will be required to share income profits of the business equally. Likewise, all partnership decisions will be made on the basis of a simple majority unless an alternative agreement exists. Most concerning however is the provision allowing each partner the right to dissolve the partnership at any time once notice has been served to the remaining parties. Despite this advantage for the individual, the law represents a significant disadvantage for the firm as a whole of insecurity and instability. For these reasons, it is highly advisable to set up a partnership agreement before commencement in order to establish a flexible set of working rules suited to each party’s needs.
At Seatons, our team of highly trained legal professionals have a wealth of experience drafting partnership agreements and provide clear, easy to understand legal advice at low sensible fees. For more information, feel free to give us a call on 01536 276300.