Partnerships: advantages and disadvantages and roles and responsibilities of the partners

What is a Partnership?

A partnership can be created where two or more persons wish to establish a business relationship between themselves; without becoming a company. The legislation that deals primarily with partnerships is the Partnership Act 1890, s.1 of the Act defines a partnership as ‘the relation which subsists between persons carrying on a business in common with a view of profit’. Individual Partnership Agreements can also be created between partners and is considered a personal form of regulating the partnership.

Advantages of a Partnership

  • The main advantage to a partnership is the lack of formality that surrounds it. An agreement to create a partnership can be created orally, in writing, or may be implied by conduct; which requires no specific agreement between the parties to take place. A partnership may also cease at any time if no formality is in place; this allows each partner the freedom to leave the partnership any time and for any reason.

  • The documentation for the partnership can also be kept confidential and need not be disclosed to the public, unlike a company, which must make all company documents available for public inspection.

Disadvantages of a Partnership

  • A partnership can lose its advantage of informality if a Partnership Agreement is created, which, if breached, would lead to a claim for breach of contract by the other partners

  • Additionally, partners do not have a separate legal personality to the business and so will be personally liable for its debts and any losses incurred.

  • A Partnership that has no specified duration can be dissolved at any time; which can create insecurity and instability for the remaining partners. Dissolution can lead to the entire partnership ending, often to the disagreement of the remaining partners who are not in a position to purchase the out-going partner’s share of the business.

Roles and Responsibilities within a Partnership

Responsibilities to respective partners

The common law has imposed a duty of utmost fairness and good faith from one partner to another. The Partnership Act 1890 sets out specific principles in ss28-30: the partners must divulge to one another all relevant information connected with the business and their relationship. Partners must also share any profit or benefit received, without the consent of the partners, in connection with the partnership or from carrying on a competing business.

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For more information on:

  • Decision-making
  • Work input
  • Profits and Losses
  • Authority of a Partner
  • Termination of a Partnership