Chapter 12
Partnership, limited liability partnership and
choice of legal status
In this chapter trading as a partnership and trading as a limited liability partnership (LLP)
are considered. These are quite distinct ways of trading, with quite separate legal regimes.
People have traded as partners for hundreds of years. The law relating to partnership was
codified by the Partnership Act 1890. This Act is still in force and it is backed up by a wealth
of case law. The Limited Liability Partnerships Act 2000 introduced the concept of the LLP,
and as yet there is little case law to expand the Act. However, as LLPs combine many of the
features of both partnerships and companies, some case law on companies and partnerships
may be applicable to LLPs.
At the end of the chapter the advantages and disadvantages of trading as either a
company, a partnership or an LLP are considered.Partnership
Definition of a partnership
Partnership is defined by s. 1(1) of the Partnership Act 1890, which states:
Partnership is the relation which subsists between persons carrying on a business in common with
a view of profit.
This definition is deceptively complex. It is best understood if broken down into smaller parts.‘Partnership is the relation which subsists between persons.. .’
This opening phrase is revealing. A partnership is not a separate entity with a legal person-
ality of its own, as a company is. A partnership is merely a relationship between persons.
Such a relationship gives rise to legal rights and liabilities, but it does not create a new legal
person. Although a company cannot be a partnership, a company can be a partner in a
partnership.‘Business’
‘Business’ is defined by s. 45 of the Partnership Act as including ‘every trade, occupation or
profession’.
However, some professionals, such as barristers, have their own rules which prevent
partnership between their members.
Mann vD’Arcy (1968)held that even if the business is only to make one deal (in this case
to buy and sell 350 tons of potatoes), this can be enough to create a partnership.