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.

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For more information on:

  • Roles and Responsibilities within a Partnership
  • Responsibilities to respective partners
  • Decision-making
  • Work input
  • Profits and Losses
  • Authority of a Partner
  • Termination of a Partnership