Part D The formation and constitution of business organisations 11: Partnerships 169
1.1.2 Carrying on a business
Business can include every trade, occupation or profession. But three points should be noted.
(a) A business is a form of activity. If two or more persons are merely the passive joint owners of
revenue-producing property, such as rented houses, that fact does not make them partners.
(b) A business can consist of a single transaction. These situations are often described as 'joint
ventures'.
(c) Carrying on a business must have a beginning and an end. A partnership begins when the
partners agree to conduct their business activity together.
1.1.3 In common
Broadly this phrase means that the partners must be associated in the business as joint proprietors. The
evidence that this is so is found in their taking a share of the profits, especially net profit.
1.1.4 A view of profit
If persons enter into a partnership with a view of making profits but they actually suffer losses, it is still a
partnership. The test to be applied is one of intention. If the intention of trading together is just to gain
experience, for example, there is no partnership.
1.2 Consequences of the definition
In most cases there is no doubt about the existence of a partnership. The partners declare their intention
by such steps as signing a written partnership agreement and adopting a firm name. These outward and
visible signs of the existence of a partnership are not essential however – a partnership can exist without
them.
1.2.1 Terminology
The word 'firm' is correctly used to denote a partnership. It is not correct to apply it to a registered
company (though the newspapers often do so).
The word 'company' may form part of the name of a partnership, for example, 'Smith and Company'. But
'limited company' or 'registered company' is only applied to a properly registered company.
1.3 Liability of the partners
Every partner is liable without limit for the debts of the partnership. This means that a creditor can require
a partner to settle an invoice if the partnership fails to pay, and partners must make good the partnership’s
debts if the partnership is terminated and does not have sufficient assets to pay what it owes.
It is possible to register a limited partnership in which one or more individual partners have limited
liability, but the limited partners may not take part in the management of the business.
The limited partnership is useful where one partner wishes to invest in the activities of the partnership
without being involved in its day-to-day operation. Such partners are entitled to inspect the accounts of
the partnership.
Under the Limited Liability Partnership Act 2000 it is possible to register a partnership with limited
liability (an LLP).