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Formation & Dissolution of Partnership

A partnership is formed when two or more persons carry on a business in common with a view to making a profit.

Often it is prudent that the relationship is governed by a Partnership Agreement, although no formal agreement is strictly necessary as the terms of the Partnership Act 1890 will apply in the absence of a partnership agreement.

The Partnership Agreement would govern the rules and regulations for the partnership and the relationship between the partners and include matters such as:-

Capital contributions;
Preparation of the partnership accounts;
Ownership of property used by the partnership;
Sharing of profits;
Sharing of losses;
Admission of new partners – new partners would usually enter into a deed of adherence agreeing to comply with the terms of the partnership agreement;

Decision making amongst the partners;
Expulsion of partners;
Retirement – a retiring partner would usually enter into a deed of retirement;
Death of a partner;
Dissolution and winding up of the partnership. A dissolution can happen for a many number of reasons, for example, an exiting partner; the sale of the business of the partnership to a third party; dissolution by order of the court etc. In some cases, a deed of dissolution may be required to record any specific terms of the dissolution;

If the partnership grows or you wish to amend or vary any terms of the partnership agreement, the terms of the agreement can be varied if it is in accordance with the terms of the original partnership agreement by way of a deed of variation.

As partners of a general partnership have unlimited liability and as the business of the partnership grows, it is common for business structures to change. It is possible to convert the business structure of a partnership to for example a limited liability partnership (LLP) or a limited company. The agreement recording this transfer and any ancillary issues such as transfer of employees by virtue of the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) will usually be recorded in a business transfer agreement.

For more information, please contact Gill Vargerson at gvargerson@streetermarshall.com

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