Trusted Solicitors For Business Partnerships
A partnership is formed when two or more people set up a business together with the common intention of generating profit (and they do not otherwise incorporate the business as a limited company). Whether or not the individuals intended to set up a partnership, English law automatically applies certain rules that govern the management of such business. Other business law services at Tinsdills include:
Tinsdills recently expanded this department following an acquisition of Grindeys Solicitors
Legal Guidance For Business Partnerships
The essential structure of partnership law in England and Wales was established under the Partnership Act 1890 and has not changed significantly in over 120 years. The provisions under the Act govern matters such as the division of profits, decision-making and how partners can leave the partnership. Later legislation created limited partnerships as well as limited liability partnerships and, whilst LLPs are a different legal form, some aspects of partnership law will still apply to them.
A limited liability partnership (LPP) is a separate legal entity to its partners (or members, as they are known) in the same way that a limited company is a separate legal entity to its shareholders. An LLP operates in many ways like a traditional partnership but gives its members some limited liability.
There are many advantages to operating a business as a general or limited partnership but there are also many potential risks too. One of the main ways to mitigate these risks is with a bespoke partnership agreement, governing the way in which the partnership is run and, importantly, what happens to the business in the event that a partner dies or wants to leave.
A partnership agreement is a document intended to regulate the relationship between the partners in a partnership. Although not a legal requirement, we would always recommend that a partnership agreement is put in place regardless of the type of partnership, not least because if a partner leaves the partnership is automatically ended.
All partnerships are primarily governed by the Partnership Act 1890, but the position set out in that Act will often not reflect the partners’ wishes in practice. For example, under the Act, partners share equally in the profits of the partnership but, in practice, partners will often want the ability to distribute profits in accordance with the percentage contribution made by the individual partners to the capital in the business or the amount of work carried out in to the business.
It will depend on whether there is anything in writing to confirm what happens to the deceased partner’s interest in the business. If there is a partnership agreement in place this will typically set out the procedure for transferring the deceased partner’s interest. Similarly, the deceased partner may have prepared a will that specifically gifts their share of the business to a named beneficiary.
Where no agreement has been made, under the Partnership Act 1890, the general rule is that the partnership must be dissolved on the death of a partner. This would mean that before the remaining partner(s) could continue, the existing partnership would need to be dissolved, the assets distributed and all debts and other liabilities repaid.
A partnership may be set up to last indefinitely, for a fixed term or for such length of time as it takes to complete a specific project. The length of the term and any provisions relating to the termination or dissolution of the partnership should be dealt with in the partnership agreement.
It is important to remember that the right not to be unfairly dismissed, or to be discriminated against on the basis of any protected characteristic, are not lost simply because a partner is not an employee of the partnership. Partners can be subject to discrimination and/or unfair dismissal and are able to bring a claim accordingly.
There have been a number of employment tribunal claims where a partner of an LLP was also found to be an employee of the partnership and, as such, was able to bring a claim for unfair dismissal. Partners should therefore act carefully when deciding to expel a partner from the partnership and legal advice should be sought from one of our specialist employment solicitors.
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