Partnership is a word that can be used in all kinds of contexts such as personal relationships, sports, such as cricket, and there are also business partnerships. As your commercial lawyers at will tell you, forming a business partnership is not necessarily a difficult process, but you do need to fully understand the legal obligations that apply to them and the different types of partnerships that exist.

In the context of the commercial enterprises, the definition of a partnership is two or more persons carrying on a business together, in a common purpose to jointly benefit, in the main with a view to profit. The legislation which applies to business partnerships is the Partnership Act of 1895, although the Limited Partnerships Act 2016 may also apply, depending on the type of partnership that is formed.

There are certain key phrases and words within that last paragraph that go to the core of partnerships, and which have a specific meaning in that respect.

The first term ‘carrying on a business’ and what constitutes doing so is evidenced by the following:

1) it is clear they are carrying on business and it is a matter of fact given their activities

2) The systems used by that person, and the regularity with which they are done, can be undoubtedly characterised as carrying on a business.

Next, we have the phrase ‘in common’, which points to the partners having mutual interests, obligations, and rights, and thus any business which in which they are seen as partners, operates to the benefit of them all.

The third expression is ‘with a view to profit’ which has a simple definition of them seeking an improvement in their financial position, and for the assets they own within the business to increase in value.

As you can see these are no especially difficult concepts to understand, and some might even say they are too simplistic, but that is one of the reasons the formation of a partnership is so easy.

The ease with which business partnerships can be formed is one of the reasons why so many entrepreneurs create them, especially if they have a relative, friend, or business associate who wishes to join them in the venture. However, the easiness of partnership formation means that there have been examples of where someone has found themselves in one inadvertently.

In order to bring the partnership into existence two, or more persons have to agree that they want to work together within the context of the three definitions we have just outlined. They also need to create a partnership agreement, and we strongly suggest that you use a commercial lawyer to draft this so that you can be sure that it is valid and lawful.

It is a legally binding agreement that should contain the following information:

  • The role and level of authority of each partner
  • What each partner’s financial investment into the partnership is
  • The process which will be followed for making important decisions
  • The procedure for dispute resolution should the partners have a disagreement
  • What the process is should a partner wish to resign, or for dissolving the partnership completely

This agreement will be created based on whether it is a general or a limited partnership. With general, each partner is personally and equally responsible for all decisions, and more importantly all the debts and liabilities which the partnership has. In the case of limited partnerships, one or more of the partners has limited liability, although one or more might also remain a general partner, depending on the partnership agreement.