The Most Frequently Asked Questions Within Business Partnerships
When two people or more start a business together with the common goal of creating a profit, and they do not otherwise incorporate it as a limited company, a partnership is formed.
Whether the individuals in question set out to start a partnership or not, English Law applies some rules to govern the management of that business automatically.
The issue of Partnerships can be a difficult one to navigate. As such, we have a team of experts on hand to use their considerable experience in this area to provide the guidance and support you need.
Below you will find a list of the most frequently asked questions on business partnerships, along with the answer for each. Have another question for us? Feel free to get in touch today and we’d be happy to help.
Business Partnerships Frequently Asked Questions
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.