{"id":7023,"date":"2020-01-01T13:07:23","date_gmt":"2020-01-01T13:07:23","guid":{"rendered":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/?p=7023"},"modified":"2024-09-18T09:44:19","modified_gmt":"2024-09-18T08:44:19","slug":"guide-to-different-types-of-partnerships","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/guide-to-different-types-of-partnerships\/","title":{"rendered":"A guide to the different types of partnerships"},"content":{"rendered":"
\r\n Last updated: 18 Sep 2024<\/strong>\r\n <\/div>\r\n \n

According to section 1 of the Partnership Act 1890, the definition of a partnership is: \u201cthe relation which subsists between persons carrying on a business in common with a view of profit<\/em>\u201d. It is this relation between two or more persons (each person can either be an individual or another legal entity classed as a person, such as a limited company), which is perhaps the most crucial characteristic of partnerships. It is impossible to hold out a business structure as being a partnership without at least two persons.<\/p>\n

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    If any type of partnership falls below two persons for any reason, e.g., if there are only two individual partners and one dies, it will automatically be deemed to be dissolved. The remaining person can then choose to carry on the business as a sole trader or set up a limited company. Alternatively, they can find a new partner and form a new partnership.<\/p>\n

    Sharing profits, losses, and responsibilities in business partnerships<\/h2>\n

    Profits and losses are generally shared out equally between all partners unless agreed otherwise, and (aside from the case of limited partnerships and limited liability partnerships), all the partners are jointly and severally liable for all the debts and liabilities of the business.<\/p>\n

    Subject to specific agreements to the contrary, all partners are entitled to take part in business decisions and the overall management of the business. Conversely, each partner is responsible for any acts or omissions of other partners acting \u201cin the ordinary course of the business of the firm<\/em>\u201d (section 10 Partnership Act<\/a>).<\/p>\n

    Taxes paid individually<\/h4>\n

    Partnerships are transparent for tax purposes; no tax is levied upon the business itself. Instead, each partner is accountable for paying their income tax according to their personal share of profits and expenses.<\/p>\n

    What are the main types of partnerships?<\/h2>\n

    Ordinary Partnership<\/h4>\n

    Most partnerships are ordinary partnerships, as set out by the Partnership Act 1890<\/a>. An ordinary partnership is not a separate legal entity. It is a group of two or more persons carrying out business together.<\/p>\n

    Each individual partner acts on behalf of the other partner(s) when negotiating and entering into contracts with third parties, and all partners are jointly and severally liable for any debts and obligations of the business as a whole, without any limitation. If the business is sued, this effectively means that each partner can be pursued individually by a creditor who is trying to recover any debts.<\/p>\n

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    All partners owe each other fiduciary duties, including an undertaking to:<\/p>\n