Company And Commercial Matters

Select an area... Overview Forming A Partnership

Forming A Partnership (Cont...)

The main points to consider when choosing between a partnership and a company are as follows:

Less Publicity of Information

As a partnership is not a separate legal entity, it is not required to make information about it public. Unlike a limited company, a partnership does not need to publish its accounts, file annual returns, details of any changes in its officers (i.e. directors and company secretary) or make its partnership deed available to the public.

Greater Liability

A company offers limited liability to its members (i.e. its shareholders) to the extent of their shareholding. This is often of considerable appeal, although in practical terms it is not always possible to limit all liability of the members of a limited company since a bank or other major creditor may well seek personal guarantees from the officers of a limited company e.g., before providing an overdraft facility.

Greater Flexibility

Unlike companies, partnerships are not required by statute to hold annual general meetings or board meetings. There is no requirement for a secretary to be appointed and partnerships are not obliged under the Partnership Act 1890 to produce annual accounts or have them audited as is the case with limited companies. Partnerships are, therefore, less restricted than companies in the way they conduct their internal affairs. For this reason a partnership is often viewed as an easier and simpler option at the beginning.

Fewer Statutory Procedures

Partnerships can be formed and dissolved without following the statutory procedures that apply to a company. However, problems may occur in relation to the disposal of assets on dissolution of a partnership. If the partners have fallen out with each other they may argue about the division of the partnership assets between them whereas with a company a liquidator will be appointed but a liquidator will not be personally concerned or affected by the disposal of the assets.

The Authority of the Partners

Every partner in a firm is jointly and severally liable with the other partners for all debts and obligations of the firm incurred while he is a partner. Further, anything done by a partner on behalf of the firm with the authority of the other partners will be legally binding on the firm unless the partner in fact had no authority to act for the firm in that particular matter and the person with whom he is dealing either knows that or does not know or believe him to be a partner.

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The articles on legal topics published in these pages are for interest only and are necessarily general in their terms. You should not act (or refrain from acting) on the basis of the information given without specific advice, as the principles and laws concerned may change, and their application will vary according to the particular circumstances.