Partnerships
Partnership: Where two or more persons collaborate for the purpose of making a profit.
The benefit of limited liability for shareholders and directors has seen the private limited company eclipse the partnership for most multi-owner (and many single owner) businesses. Where this benefit is not of over-riding importance, however, partnerships may be preferred for the other advantages they offer:
- Partners may in some circumstances enjoy tax and national insurance advantages compared to the shareholders and directors of similar incorporated businesses.
- They avoid some of the set-up and running costs of limited companies.
- Unlike limited companies there is absolutely no requirement to publish financial details of your business; these are private between partners and the Inland Revenue!
In short, a partnership is often still most cost effective for many businesses with a relatively small number of owner/managers. It is also the preferred structure within the professions, where partnerships may comprise tens or even hundreds of partners. Moreover, because partnership is presumed to exist as soon as two or more persons enter into a business in the pursuit of profit, partnerships are often started "by default" - but this is the path into partnership that leads to most difficulties!
The biggest problems in partnership law tend to arise when there is no partnership agreement in writing. In the absence of a partnership agreement it may prove impossible to expel a partner, and where a partner does resign it may prove very difficult to reach an agreement over such issues as the valuation of the business and in particular the goodwill that may have been built up over years of trading.
Case Study: J and C built up a business selling and installing bathrooms that, after 8 years trading, had a turnover in excess of £1m and profits, after partners' regular drawings, of £100-200k a year. At that stage C's husband joined the partnership and relations between the original partners rapidly soured. J sought advice in connection with her withdrawal from the business. Unfortunately, in the absence of a written agreement she was unable to obtain a settlement that recognised the substantial goodwill that she had helped build up.
Partnership agreement will cover:
- Sharing of profits and losses
- Rules for decision making
- Formula for termination of the partnership, especially the valuation of assets
- Retirement, resignation and death in service of partners
We have significant experience in advising on whether partnership represents a sensible approach when starting a company, in drafting comprehensive agreements, helping to resolve problems as they crop up and, ultimately, in incorporating or dissolving partnerships when they no longer represent the best solution to a business requirement.
Contact Aberdeen Office |
||
| Tom Rennie | 01224 428000 |  |
Contact Inverurie Office |
||
|
Graham Matthews |
01467 672800 | |
Contact Huntly Office |
||
| Alexander Mitchell | 01466 792101 | |
Contact Keith Office |
||
| Alexander Mitchell | 01542 882537 | |
Contact Alford Office |
||
| Linda Purkis | 019755 62939 | |