When trading through a partnership structure, consider the partnership\u2019s position if you do not have a partnership agreement in place. This article explains how the law treats partnerships without partnership agreements and evaluates the practical considerations that may arise.\u00a0<\/p>\n\n\n\n
General partnerships are unincorporated business entities. The law automatically recognises a partnership where two or more people engage in a commercial activity with a common view and intent to make a profit. This differs from other business entities, such as companies and limited liability partnerships<\/a>. These kinds of structures are incorporated and therefore require the owners to take specific steps to create the entity. <\/p>\n\n\n\n Despite potential risks, partnerships remain popular because they offer significant practical advantages over companies: no filing requirements with Companies House and no obligation to publish accounts publicly. However, this flexibility comes with exposure to personal liability that many partners do not fully consider until problems arise.<\/p>\n\n\n\n In a general partnership, partners will agree on the terms of how the business will operate, and these terms will govern the business relationship. Likewise, the agreement will be treated as a contract between the partners. <\/p>\n\n\n\n The law grants partners considerable flexibility in determining the exact terms of their business. In fact, partnerships remain one of the most flexible business structures available.<\/p>\n<\/div>\n\n\n\n In practice, most partners expressly agree to specific terms that will govern the partnership and record them in a partnership agreement. However, without a partnership agreement, the law will imply a default set of terms to govern your partnership. Unlike limited companies, which benefit from the Model Articles of Association, partnerships rely on 130-year-old legislation that was not designed for contemporary commercial arrangements. Similarly, you may have a partnership agreement in place, but it may have gaps or fail to address a specific matter, such as how the partners will share profits and losses. In these circumstances, the law will imply the default provision.<\/p>\n\n\n\n Default provisions exist in the Partnership Act 1890<\/em>. <\/p>\n\n\n\n Similar to how the Model Articles of Association govern companies in the absence of bespoke articles, the Partnership Act governs partnerships without a partnership agreement. However, the default provisions within the Partnership Act are outdated and lack commercial sense today. <\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\nThe Partnership Act <\/h2>\n\n\n\n