Partnerships

Partners Duties

The Partnership Act 1890 lays down some specific duties for business partners, the most important of which are as follows:

  • The duty of disclosure, which means that partners must provide full and true financial accounts relating to the partnership.
  • The duty to account, which means that partners must account for all benefit derived, without consent, from any transaction concerning the partnership, its property, including information derived from membership of the partnership, its name or its business connection. For example, a doctor who undertakes medical insurance outside surgery hours can be made to account to the partnership for any profits he makes.
  • The duty not to compete, which means if a partner does compete with the partnership, he must account for any profits made in the course of that business.

Alongside these duties are general duties of trust between partners, meaning that all partners must act in good faith and for the benefit of other partners.

There are three main types of partner in the UK, as follows:

  • A general partner is someone who is actively involved in the everyday running of the business. General partners are liable to the full extent of their wealth to help pay off any debts that their partnership has. This means that they could be liable for an amount greater than their initial financial investment; they are considered to have unlimited liability.
  • A limited partner is liable for debts only up to the amount of their initial financial investment. They are not allowed to participate in the day-to-day running of the business, neither can they withdraw their financial investment in the course of ordinary events.
  • A dormant or sleeping partner is someone who merely invests their money into a partnership enterprise and does not participate in the management of the business. While dormant partners are similar to limited partners, they do not have to comply with the formalities required for establishing a limited partnership, in that they do not register themselves (with Companies House) as limited partners. Sleeping partners are considered to be general partners as regards liability, however, and hence have unlimited liability for any partnership debts.