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• # 72235
• Thu 16 Jun 2011 04:50 AM

Hi

Can someone please explain this concept - i understand that a company is a separate legal entity, but what about partnerships?

If Mr Jones & Mrs Jones T/A Mr & Mrs  & Mr Jones & Mr Brown T/A Mr & Mr - are they both separate legal entities?

Is there legislation to back this?

Any help/guidance appreciated

Thanks

Martin

• "Helping small acorns become large oaks"
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• # 72238
• Thu 16 Jun 2011 06:43 AM

> Hi Martin

The partnership is not a separate legal entity from the partners.

From the dim and distant past parts of my memory the partners of a partnership are all fully liable for the debts of the partnership this means that creditors can recover money from all the partners no matter what proportion of the partnership they may own.

In essence a partnership is just multiple sole traders one big caveat being partners act for and on behalf of all the others partners in the partnership

There is also an LLP which is a limited liability partnership. Other than they have to register at companies house and does limit the liability of each partner.

Kind regards
Stuart
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• Forum Moderator, South East & Greater London Regional Chairman
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• # 72241
• Thu 16 Jun 2011 07:12 AM

Hi Martin

I have done the course more recently than Stuart, but essentially he is right the partners are jointly liable for the debts of partnership. However a court case may be taken out against the name of the partnership rather than list each partner seperately - or the reverse one partner can sue another legal entity in the name of the partnership. However the partnership itself is not a single legal enitity in the same way that a limited compamy is, instead each partner acts as an agent for the others.

So each partner remains a seperate legal entity. The partners should draw up a contract between themselves - this can determine if they have equal profit and loss sharing. If they fail to do this then the partnership Act of 1890 kicks in and they all have equal responsibility.

Mike

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• # 72246
• Thu 16 Jun 2011 08:15 AM

Unfortunately the answers given do not give 100% understanding of Partnership liabilities.

The correct terminology, irrespective of how many partners there are - and ignoring a LLP scenario, is that the partners are "joint and severally liable".

This means that if, for example, the Partnership comprises two individuals, they are both liable for 100% of any debts or liabilities.

It does not matter if the Partnership agreement has a 50/50 split (or any other ratio), if one partner disappears the creditor can go after the other for the entire debt.

When suing a Partnership it would be rare to sue in the name of the Partnership - i.e. Bloggs & Co Ironmongers, it would (and should) be the case that two defendants are named so the action would be in the name of John Bloggs t/a Bloggs & Co and Fred Bloggs t/a Bloggs & Co.

Geoff

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• # 72248
• Thu 16 Jun 2011 08:34 AM

Hi Geof

It's exactly like taking out a joint mortgage then - 'jointly and severally liable'.

I understand that partners may draw up a profit (and loss) sharing agreement say a 25:75 split due to different levels of capital invested and that notwithstanding this a creditor can obtain debt from any partner. If the partner with the 75 split does a runner the other must honour the debt. But afterwards this partner could recover his loss from the other partner under the terms of the agreement - not much good if he's done a runner I'll admit.

cheers

Mike

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• # 72249
• Thu 16 Jun 2011 08:52 AM

Mike

Yes.

As to recovery against the other partner - it does not always follow that one has "done a runner".

There may be a partnership dispute and one just walks away leaving the other to pick up the pieces.

I had one solicitor client where one partner left with a £64,000 deficit in the capital account, I won't go into the reasons why it was so high, it was and was backed up by an agreement for repayment to the remaining partner.

The debt wasn't paid, legal action started. The debtor was ordered to make payments of £500 a month. Made one payment then filed for bankruptcy. One year later he was practising again and is now a partner in another firm.

Moral of the story - be careful about going into Partnership, it often ends in tears.

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• # 72252
• Thu 16 Jun 2011 09:57 AM

Same goes for Ltd companies if the shareholder agreement is a bit flaky.

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