Partnership Agreement
Are you thinking of Buying a Business or taking a Lease of Business Premises with another person? If so then to avoid future problems and disputes you would be strongly advised to instruct the Solicitor acting for you to prepare a simple Partnership Agreement and to purchase the business property as what is known as tenants in common rather than beneficial joint tenants.
In simple terms in the absence of a Partnership Agreement if a dispute arises between the two of you The Partnership Act 1890 will determine that a partnership exists if “persons carry on a business in common with a view of profit”. A Limited Company is not a Partnership.
If the 1890 Act needs to be used then consideration will need to be given as to whether the business premises were purchased as tenants in common or beneficial joint tenants and whether any profit is shared. There are certain exemptions to the presumption of a Partnership which your Solicitor will be happy to explain to you.
People who have entered into a partnership are called a Firm and the name of the business carried on is the Firm Name.
Each Partner is an agent of the Firm and has the power to bind the other Partner by their actions.
If one person pledges the credit of the Firm even if the other person has no knowledge of this the Firm could be bound.
Each of the Partners in a Firm are jointly and severably liable with the other Partner and any debtor can claim the whole of the debt against one or other person which could mean that you would be responsible for a debt which has arisen within the course of business which the other person had created and of which you were unaware.
Where one Partner acting within the scope of his apparent authority within the Firm receives money or property belonging to another person and misapplies it then the firm will be liable to make good the loss.
A Court Order could be obtained on an application by a judgment creditor of a Partner to charge that Partner’s interest in the partnership property or profits – this could result in a charge being registered against a Lease of business premises,
These few examples show some of the pitfalls should you need to rely on The Partnership Act 1890 in the absence of a Partnership Agreement.
We would therefore advise that on creating or taking over a business with another person you should ensure that your Solicitor is instructed to prepare a Partnership Agreement on your behalf which will record the agreement reached between you both and in that event you could rely on that Partnership Agreement in case of a dispute arising rather than having to rely on an Act of Parliament which is 117 years old.
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