Partnerships consist of 2-20 partners; except in professional partnerships (ie solicitors, accountants) where the number of partners can exceed this. Partnerships are governed by the Partnership Act 1890. Partnerships have unlimited liability.
It's advised that partnerships have a formal written agreement between the partners; a contract which binds them in law. This will mean that if there are disagreements, the agreement can be referred to and upheld in a court of law. This agreement is known as the 'Deed of Partnership', and it outlines the conditions to which the partners have agreed to. This agreement can cover any aspect regarding how the partnership is run ie profit/loss sharing ratio's, interest on drawings, interest on capital, salaries. BUT if there is no agreement then the Partnership Act 1890 is applied to the partnership.
1890 PARTNERSHIP ACT:
1. profits and losses are to be shared equally
2. NO interest on capital
3. NO interest on drawings
4. NO salaries
5. any loans made by partners to the partnership should entitle said partners to 5% interest on loans
6. where a partner contributes more capital than agreed, they are allowed interest to be received at 5% on the excess capital
BENEFITS OF PARTNERSHIPS:
1. greater capital - therefore greater potential of growth
2. greater experience and ability within the business; individual partners may be able to specialise in particular areas of the business
3. shared responsibility and risk; with more people running the business there is more cover for illness and holidays