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Partnership

Also known as: Business Partnership, Professional Partnership

Definition

A partnership is a business structure where two or more people share ownership, profits, and unlimited personal liability for business debts without forming a separate legal entity.

Understanding partnerships is crucial when creating your will, as your partnership share forms part of your estate and how it's handled can directly affect your family's inheritance.

What Does Partnership Mean?

Under the Partnership Act 1890, a partnership is "the relation which subsists between persons carrying on a business in common with a view of profit." Unlike a limited company, a partnership is not a separate legal entity—the partners and the business are legally one. Each partner is personally responsible for all partnership debts, not just their share. Partnerships can be formed through written or verbal agreements, or even by conduct when people work together and share profits.

General partnerships are most common, where all partners have unlimited liability. Limited partnerships (LPs) have at least one general partner with unlimited liability and limited partners whose liability is capped at their investment. Limited liability partnerships (LLPs) are separate legal entities where members have limited liability, similar to company directors.

Under Section 33 of the Partnership Act 1890, partnerships automatically dissolve when a partner dies unless the partnership agreement states otherwise. Without a formal agreement, the business must cease trading and all assets are liquidated. When David's architecture partnership dissolved on his death without an agreement, his £340,000 business liquidated for £45,000—his estate received just £22,500 instead of the expected £170,000.

Your partnership share passes according to your will, but partnership agreements often give surviving partners the right to buy out the deceased's share at a specified valuation. Coordinating your partnership agreement with your will ensures your family receives fair value while respecting business continuity needs.

Common Questions

"What happens to a business partnership when one partner dies?" Under the Partnership Act 1890, a partnership automatically dissolves when a partner dies unless the partnership agreement states otherwise. Without a formal agreement, the business must cease trading and all assets are liquidated, with proceeds distributed equally among surviving partners and the deceased's estate.

"Do I need a written partnership agreement to form a partnership in the UK?" No, you don't need a written agreement to legally form a partnership in the UK—partnerships can be created through verbal agreements or even implied by conduct. However, it's strongly recommended to have a written partnership agreement to clarify profit sharing, responsibilities, decision-making, and what happens if a partner dies or leaves.

"How is a partnership different from a sole trader business?" A partnership has two or more people sharing ownership, profits, and liabilities, while a sole trader operates alone. Both have unlimited personal liability for business debts, but partnerships require coordination between partners for major decisions and must split profits according to their agreement (or equally by default).

Common Misconceptions

Myth: Partners have limited liability protection like company directors

Reality: General partners have unlimited personal liability for all partnership debts. Creditors can pursue partners personally and claim against personal assets including homes. Only limited partners in LPs or LLP members have limited liability.

Myth: My business partner will automatically inherit my share when I die

Reality: Your partnership share forms part of your estate and passes according to your will, not automatically to your business partner. However, partnership agreements may give surviving partners the right to buy out your share at a specified valuation.

  • Partnership Agreement: The contract governing partnership operations and what happens to your share on death.
  • Partnership Dissolution: The process of ending a partnership that occurs automatically when a partner dies unless agreed otherwise.
  • Sole Trader: A single-owner business structure—both have unlimited liability but partnerships involve shared decision-making.
  • Limited Company: A separate legal entity with limited liability where shares transfer more easily than partnership interests.
  • Business Assets: Your partnership share is a business asset that must be valued for probate purposes.

Need Help with Your Will?

If you're in a partnership, your will needs to properly account for your business interest and coordinate with your partnership agreement to protect both your family and your business.

Create your will with confidence using WUHLD's guided platform. For just £99.99, you'll get your complete, legally binding will plus three expert guides. Preview your will free before paying anything—no credit card required.

Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.