Should Your Business Run As A Traditional Partnership?

If you have been wondering on the best set up for your business, then this could be the blog post for you. Here our corporate lawyers talk about what a traditional partnership is and if your business should run as one. We look at what a traditional partnership is along with the advantages and disadvantages. This will help you to make a more informed about the best set up for your business. Why not book a chat with our corporate solicitors to chat about the best set up for your business?

What Is a Traditional Partnership?

A traditional partnership is where two or more people run a business together. Each partner will share liability and profits from the business. If you are looking to enter into a partnership to run your business, you will need a Partnership Agreement drawn up. This is something our corporate lawyers can help with. If you don’t have one of these in place it means that you could be subject to the Partnership Act 1890.

The Partnership Act was passed in the Victorian age (1890 wasn’t a typo). It can require that a partnership is dissolved if a partner dies or retires. Without a Partnership Agreement in place there is no requirement for a partner to contribute to any part of running the business. This includes turning up to work, taking equal shares, or sharing liability for example. It means that regardless of how much work each partner does, all profits must be split evenly. This is why a Partnership Agreement needs to be carefully drafted and put in place, so it is far for all partners in the business.

Our corporate solicitors can create a Partnership Agreement that sets out the duties of each partner. It will also state how much capital each partner put into the business. The share of the profit and losses will be clearly laid out, as will the dispute resolution procedure.

What Are the Advantages of a Traditional Partnership?

When you run your business as a traditional partnership, partners will share the responsibility of the business. This means that partners can work to their strengths such as client sales, managing clients or admin for example. There will also be more scope for the business to grow as more people are putting in capital. When it comes to the tax structure, that is simple too. Each partner will pay tax on their share of the profits.

What Are the Disadvantages of a Traditional Partnership?

There are some downsides to running your business as a traditional partnership. For example, each partner is liable for the debts and other liabilities of the business. It is common for disputes to arise is one partner is considered to be doing more or less work than the other partner. As briefly explained above, if a Partnership Agreement is not in place, disputes or the retirement or death of a partner can lead to the dissolution of the partnership. It will then take a great deal of investment and time to re-form the business.

Not sure of the right set up for your business? Why not book an appointment with our corporate lawyers now who can talk through the options with you.