What is a partnership?
The Partnership Act 1890 defined partnership as "the relation which subsists between persons carrying on a business in common with a view to profit". Excluded from this definition is any company registered under the Companies Act, as these bodies have their own set of statutory rules. Persons who have entered into partnership with each other are collectively called a "firm".
There must be at least two people involved in a partnership (although not necessarily natural people as companies can be partners with natural people or with other companies). Also some element of agreement is involved. The agreement does not have to be in writing, however; indeed, it need not be verbal at all - it can be implied from conduct in the absence of any express agreements.
If there is any dispute about the existence of a partnership, it will be for those alleging that the partnership exists to prove that it does, and it may well be that the date stated in the written partnership agreement (if there is one) is the best available evidence.
The persons concerned in a partnership must be carrying on business "in common" and "with a view to profit". Thus, associations of persons formed for a non-profitmaking purpose cannot in law amount to partnerships. This rule affects associations formed for charitable purposes but is also important for members' clubs, which are often formed with the intention of covering their expenses but not of making a profit.
Establishing a partnership (or firm) is an attractive option for two or more people wishing to enter business together without starting up a new company. By comparison with other methods of arranging a business, a firm can begin trading very quickly, with fewer formalities and all partners working on a self-employed basis. The prudent course is to put in place a written partnership agreement when starting up a new firm. This allows the structure of the business relationship to be clearly determined, meaning that in the long term, things will run more smoothly.
It is important to bear in mind that a traditional partnership does not have a distinct legal identity. Instead, all partners must jointly bear the liability for debts the business incurs. This means that if you enter into a traditional partnership, your personal assets could be at risk for any unpaid debts incurred by you or your partners in the course of business.