What is a Business Partnership?
A business partnership is a legal relationship that is generally formed by a written agreement between two or more individuals or companies. The partners invest their money in the business, and each partner benefits from the profits and sustains part of any losses.
A partnership, because of its nature, is probably the most complex business arrangement available. In this situation our experience in identifying the right solution for you is critical.
If a partnership is experiencing financial difficulties each or all partners should seek advice from an Insolvency Practitioner.
As with any business arrangement, insolvency problems come with their own set of regulations. Thus, a partnership can be subject to the following procedures:
With a smaller partnership it may be appropriate to link together a number of simultaneous (or interlocking) Individual Voluntary Arrangement (IVAs) to protect the partnership and the individual partners.
It may also be appropriate to have a Partnership Voluntary Arrangement – but this depends on the circumstances.
This process could be used to continue to trade the business or bring it to a conclusion.
When a partnership faces financial problems, it can enter a Partnership Voluntary Arrangement (PVA). A PVA will take account of the partnership’s assets and liabilities and debts, in a similar way to a Company Voluntary Arrangement (CVA).
However, due to the personal liability of each partner, generally each partner will need to have an Individual Voluntary Arrangement (IVA) to protect their personal assets as each partner is liable for the full amount of debt.
Like other forms of Voluntary Arrangements, it is necessary that a Licensed Insolvency Practitioner oversees the voluntary arrangements and will assist in the preparation of the proposal, make comments on the proposal to creditors and to the Court.
A partnership or an LLP can also be put into administration in the same way as a limited company: by the partners or creditors, either in or out of court.
The business of the partnership is managed by an Insolvency Practitioner, which enables a viable partnership business to survive as ‘a going concern’. In some instances, the partnership may also be able to obtain the creditor’s approval to enter a voluntary arrangement.
If an administrator is appointed out of court, a statutory declaration must be signed by each partner to declare that the partnership is unable to meet its debts.
A benefit of this avenue is that it protects the partnership assets by way of moratorium.
A partnership winding up is the process to wind up your partnership (or deal with the closure of it) if the business is insolvent – or in other words the value of the assets of the business are not enough to be able to clear all of the debts.
The partners can petition (through the court) to wind up the partnership. This can be done concurrently with individual bankruptcy petitions against the individual partners – but these do not have to be issued at the same time.
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Each partner is liable not only for his/her business and personal debts but also their partner’s business debts. Therefore, if you are a partner in a non-LLP partnership it is crucial that you obtain independent legal advice at the earliest opportunity, especially given the complexities of this area of law and the possible subsequent outcomes.
We work with partnerships acting for either the partnership or the partners personally. For more information, contact Griffin & King today for free impartial advice.