What is the legal significance of a partnership agreement?

The basic legal structure of the partnership is laid out in the Partnership Act 1980, with limited liability partnerships created by the Limited Liability Partnerships Act 2000. A company solicitor should be consulted regarding the legal implications of the different structures of partnerships.

Ordinary partnership agreements should set out the basic terms that the business will operate under. Your agreement should include who will contribute what skills and other inputs (such as funding) to the business, but more importantly, how the profits of the partnership will be shared. Another important aspect of an ordinary partnership to understand is that all partners are equal when it comes to the company’s debts. If your partner were to leave the company, you would still be liable under law for any outstanding debts that are owed to your creditors. This is called being severally liable. A company solicitor can provide further legal advice on your liability under a normal partnership agreement. In addition, a company solicitor can assist you with drafting the agreement.

A limited liability partnership on the other hand operates in a similar way to a limited liability company. The key difference to be aware of between ordinary and limited liability partnerships is that under law each partner in a limited liability partnership will only be liable for the amount of money they initially invested in the business. Limited liability partnerships have some of the protections in law that limited companies have, but not all. A company solicitor can advise you on your liability within a limited liability partnership.

Because of the potential liability risk that is inherent in a partnership, it is vitally important to ensure the partnership agreement you sign is clear and unequivocal regarding the liabilities that each partner in the business will have. Legal advice from a company solicitor will be essential in order to ensure your partnership agreement achieves this.

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