Many people are in business in partnerships, but few fully understand the implications of their relationship.

This is, perhaps, all the more surprising as the law is based on a very old statute, the Partnership Act 1890.

Any two or more persons carrying on business together with a view of profit are, legally, a partnership.

A partnership is not a separate legal entity like a company. For example, property is conveyed to individual partners jointly and not to the partnership.

As regards the outside world, the partnership has little legal effect.

The partners are jointly and severally liable for all the debts of the partnership and they are taxed individually.

It is with regard to rights between partners that the greatest misunderstandings arise.

A partnership continues only as long as the partners wish it to.

If one leaves, that partnership is ended - even though another may take its place - often under the same name.

The Partnership Act provides only for a dissolution if one person wishes to leave.

This means a sale of the business and assets and a distribution of the proceeds.

If the remaining partner or partners want a right to continue the same business uninterrupted, then provisions to that effect should be incorporated into the Partnership Agreement.

These provisions would give the continuing partners a right to buy the outgoing partner's interest and provide a means of valuing that interest.

A properly drafted Shareholders Agreement will help prevent disputes arising on this and other key issues.

Jonathan Oxley is a partner with Lee & Priestley solicitors, Bradford.

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