Partnerships
No formality is required for the formation of a Partnership and this lack or formality gives rise to potentially serious and sometimes terminal problems for a firm.
Without a written Partnership Agreement your Partnership will be governed entirely by the Partnership Act of 1890 which is extremely old and can be very inflexible. We detail below some areas which highlight the vulnerability of partners who are governed by the Act alone.
- If any one Partner gives notice to the others, the Partnership will be dissolved i.e. ended. The notice need only be verbal and may he given in the heat of the moment or as a result of a change in temperament associated with, perhaps, alcoholism or marital disharmony, for example
- No matter how unreasonable the notice is, the effect of dissolving the Partnership is that the bank account will be frozen and staff will be made redundant and no Partner or group of Partners has any automatic right to take over the business and continue to run it
- The death or bankruptcy of one Partner automatically dissolves the Partnership
- Partners have no right to expel a Partner however good the cause be it theft from the firm, imprisonment or incapacity
These are just a few of the pitfalls which may beset a Partnership and we hope it emphasises the importance of having a written Partnership Agreement.
December 2008
December 2008
