Partnerships

Partnerships are groups of people who contribute capital and management expertise to the same business enterprise and accept joint responsibility for the operation of the business. The minimum number of partners is, of course, two. The maximum number in most cases is twenty. Like the sole trader, partners are liable for all debts and conduct of their business, and because several people share responsibility and the actions of one partner could have serious consequences for the rest, there are legal restrictions on the responsibilities of the partners to each other. These are defined by the Partnership Act of 1890. Amongst other things this Act states that partners should receive an equal share of the profits. When partners have contributed varying amounts of capital this is unreasonable. To deal with this and similar situations, partners can vary the conditions of the Act by drawing up a legal document – a deed of partnership – which sets out the conditions under which they agree to do business together.

Partnerships can benefit from having more capital and expertise than the sole trader. A solicitor with experience in conveyancing (the transfer of property rights) might seek partners with experience of the legal problems of business and divorce. These are not automatic benefits of a partnership. The person setting up business as a sole trader with £40000 in capital will have a stronger financial base than three people contributing £5000 each to a partnership. Again, a person with a wide and varied experience as an industrial manager will have more expertise for a venture as a sole trader than two friends setting up as partners in their first business venture.

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Forms of private ownership – the sole trader	\|	Limited companies

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