UK Partnership Law

1 Partnership Law

There are separate rules for partnerships governed under the UK law.

1.1 Partnership definition

Partnership is simply a business combination in which more than two persons come together to perform activities with same objective to earn profit.

If we go back before partnership, sole proprietorship exists in which only one person is involved (one man ownership) and responsible for all activities and ultimately he has rights for whole profits and loss.

But in partnership more than two persons are involved with more investments and activities, so in this ownership is divided between persons who invest money that’s why it is called partnership (more complicated as compared to sole proprietorship)

2 Forming a Partnership

Partnership is simply formed when more than two persons decided to perform some work with an intention to earn some money. Partnership is formed for any type of occupation but all the partners must be responsible to work together because they all (if more than two) are owners.

2.1 Partnership agreement

A written Partnership agreement is not legally required but it is considered beneficial to avoid future conflicts.

On written agreement following terms are mentioned , partners can add additional rules if they all agree i.e. profit sharing ratio otherwise partnership act 1890 will applied(all partners have equal profit shares)

  • Name of the firm (used to denote partnership)
  • Nature of business or its activities, performed by partners
  • Name of banks at which firm will maintain its accounts
  • Authorities of partners
  • Responsibilities or duties of partners
  • Profit sharing ratios

To govern partners, partnership acts are made in which all rules and regulations mentioned

They are given as follows:

  1. Partnership Act 1890
  2. Limited Partnership Act 1907
  3. Limited Liability Partnership Act 2000

From above acts, each act has separate rules for separate partnership. So in one time only one act is applicable but these partnerships can change their acts also.

3 Partnership act 1890

According to partnership act 1890, partnership definition is same as in simple partnership and known as traditional partnership. Other rules are given as follows

  • All partners must be active , they must involve in performing activities (management)
  • Minimum partners are two and maximum are allowed to unlimited.
  • All profits and losses should be equally distributed.
  • All partners are equally liable for sudden loss or danger (natural disaster) except in case of personal negligence.
  • All business liabilities are paid by all partners, no one can avoid it.
  • Partnership ends up at the death of any partner.
  • There must be joint partnership account
  • There may be written or oral agreement and sometime conduct of the partners also makes is an agreement.

3.1 Termination OF Partnership Under 1890 Act

There are some conditions in which partnership is terminated

  • If partners mutually agree to ends it up
  • Order from court
  • If duration of partnership expires
  • Death of any partner or bankruptcy

4 Partnership Act 1907

According to partnership act 1907, when two or more than two persons come together to perform business activities with an objective to earn profit and partners are liable for debts of business up to the extent of their investments, known as limited partnership.

4.1 Rules and regulations of partnership act 1907

  • Minimum two partners and maximum should not exceed from twenty partners.
  • There must be one general partner (the partner who has unlimited liability) who will be responsible for all the debts and liabilities of the firm beyond his investment.
  • Limited partners (having limited liability of debts up to their investments) cannot withdraw any amount from their investments.
  • Limited partnership does not end up at the death of any partner.
  • Limited partnership dissolved under legal framework and the general partner acts as leading partner to resolve all the affairs.
  • General partner must be considered as active partner ( takes part in all activities of management ) ,if any limited partner takes part in management then he will be responsible for all debts and liabilities in which he involves through management ( beyond his investment ).

5 Partnership Act 2000

According to partnership act 2000 , limited liability partnership is developed through written document Of “ incorporation document “ and unlike limited partnership ,all members of LLP have limited liability towards their investment.

5.1 Rules and regulation

There are following rules and regulations of LLP under partnership act 2000.

  • LLP is legal body separate from its partners so it is just like company and most of the issues are dealt under the company law.
  • Partnership is dissolved or ends up by mutual agreement and by giving notice to all other partners.
  • Liabilities of all partners are limited and LLP will be liable for the debts and all other payments of parties.
  • There are more legal documentary requirements as compared to limited partnership so all these requirements must be fulfilled as they needed and most of the requirements are similar to companies
  • Minimum two and maximum unlimited partners are allowed

5.2 Formation

LLP be formed with more rules and regulations as compared to traditional partnership and limited partnership (more formal) ,they are given as follows,

  • Name
  • Incorporation document
  • Statement of compliance
  • Location of its registered office (England and Wales)
  • Address of the registered office.
  • Name of all partners/members with address.
  • There must be two designated members(who update registrar for the publicity requirements), with name and address
  • LLP will be bund to the acts of all partners (agents) if they work within their authorized limits.
  • A written partnership agreement with clear description about rights and duties of all partners.

LLP provide more protection and benefits to their members as compared to traditional partnership and limited partnership

6 Authority of partners

When we talk about the authority of partners we must remember the concept of agency because partners are considered as agents of the firm and agent/principal to  their co-partners.

So according to principal of agency, each partner (agent) is accountable to the work permitted by the firm and when partner perform acts beyond the authorized limits then firm will not liable so partner is personally liable for his acts if he takes decision by himself.

Usually authority of partners is categorized into two;

6.1 Express authority

When firm allows partners very clearly or in written agreement (partnership deed) that, you have to perform following work up to that extent then it is called express authority.


Enter in the contract on the behalf of partnership when all partners mutually agree to authorize that partner.

6.2 Implied authority

In this, authority is not described in agreement or not delegated but some time partners take decisions in favor of firm then the firm will be liable for the acts of that partners.

Implied authority also known as apparent authority.

7 Rules for new and retiring partners

If one partners joined the partnership after its formation the new partner is liable for the acts of other partners or firm from the time he joined partnership and will not held responsible for any act before his joining.

Same rule applied to leaving or retiring partner ,leaving partner held responsible for the debts or any other outstanding liability of his work at his time with partnership until all his acts and decisions cleared.

7.1 Some other rules for partnership

  1. There are no statutory rules and for the regulation of partnership
  2. No need to prescribe its accounts
  3. There is no requirement of external or internal audit
  4. Unlike companies general public has no right to inspect the accounts of firm.
  5. They are required to make a return of profits for income tax and for registration of VAT.