Private Companies – Partnerships
A partnership exists when two or more people jointly operate and own a business, as opposed to when one person operates and owns a firm. The enterprise may engage in any trade, such as organic dairy farming or plumbing, or any profession, such as dentistry or architecture. According to BEIS data, there are now approximately 415 000 partnerships in the United Kingdom. Slaughter & May, the City law firm, is one of the largest, with approximately 110 partners and 1,140 workers. However, the majority are far smaller, with around 70% consisting only of the partners and no staff. The Partnership Act of 1890 primarily governs partnerships (PA 1890). In accordance with section 1 of this Act, a partnership is lawfully created when two or more people operate a business for profit. The collaboration will be governed by a contract, which may be oral or written. In order to join a partnership, no procedures, such as registration with a government agency, are required. This means that if you and a friend start baking macaroons with the goal of selling them to your fellow students to gain money for yourselves (rather than, for example, for charity) and sharing the proceeds, you have formed a partnership under the PA 1890, even if you did not intend to do so. However, each spouse must register for tax purposes with HMRC. The partners will divide the business's profits and losses equally. In a partnership consisting exclusively of persons, each partner is taxed as a self-employed individual, paying income tax on his or her portion of the partnership's profits. A partnership has no legal existence of its own. Therefore, the partners have limitless accountability for the partnership's debts. As with a sole proprietorship, if a partnership fails, creditors can pursue not just the assets used by the business, but also the personal assets of the partners. This obligation is also stated to be joint and several among the partners, allowing a creditor to pursue the full amount of a debt from any one partner or from all partners jointly. When a partner dies or retires, the surviving partners will typically buy him out so that the partnership can continue. Unless this is agreed upon, the partnership will be dissolved. In summary, a partnership consists of two or more persons who, pursuant to a contract (whether written or not) between them: (a) share the right to participate in making decisions that affect the business or the business's assets (although they may have agreed that one or more of their number will not be involved in day-to-day matters, but only in fundamental decisions); and (b) share the responsibility for managing the business and its assets. (b) share ownership of the business's assets (although they may have agreed that the business may use an asset owned by one of the partners individually). (c) share unlimited liability for the business's debts; (d) share unlimited liability for the business's earnings; nevertheless, if one partner fails to pay, the others must pay his share.
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