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Business Partnerships

Business Partnerships

What is a Partnership?

Under the Partnership Act 1980: “A Business Partnership is the relation which subsists between persons carrying on a business in common with a view of profit.” Simply put, it is two or more people aiming to run a profitable business.

In Scotland, things work a little differently.  Scottish partnerships are their own legal identities, existing separately from their partners.

Silent partners

A silent partner is an individual whose only stake in a business is providing capital to fund its day-to-day operations.

Although they do not take part in the day to day running of the business, they are still jointly liable for the firm’s debts, as they have the same fiduciary relationship with the firm.

What happens when partnerships struggle with debt?

First of all, are you able to negotiate with your creditors?. You should ask yourself whether it’s a good idea to continue to trade through financial difficulties. You will need to complete a business budget sheet to do this, which outlines the partnership’s income and outgoings.  

You will also need to look at the income and outgoings for the firm (normally the last 3 and 12 months should be sufficient). The Partnership may also need to budget for income tax on its profits and value added tax (VAT)if it is registered for VAT. If this all seems a little overwhelming, get some help from your accountant.

If your Partnership has money left over after all these considerations have been made, why not think about making an offer to repay your debts?

Partnership debts – who is liable?

In most cases, creditors will ask the partnership to pay its debts. If the firm cannot or will not pay, creditors are likely to chase the partners themselves.

Partnerships are jointly and severally liable for the firm’s debts. This means that the business’s creditors can take action against any partner. Furthermore, they can take action against more than one partner simultaneously, even if there is a partnership agreement that says otherwise.

Someone who joins a partnership is not liable for debts incurred before they joined – unless an agreement is made that says otherwise.

If someone leaves a partnership, he or she will sill be liable for the firm’s debts before they left. What’s more, an individual may still be liable for any debts the partnership later builds up after they lave. This is the case unless an agreement is made with the other partners, or their name is legally removed.

Consider negotiating informally with your creditors

This is perhaps the simplest of the options available to you. Use your budget to work out just how much your partnership can offer to your creditors.

Take into account which of your debts are priority and non-priority and should be dealt with sooner.

Getting help with a Self-Employed IVA

A Self-Employed IVA (Individual Voluntary Arrangement) is a debt management solution tailored especially for those running their own businesses. This might be a good solution for you.

Find out how a Self-Employed IVA works

With a Self-Employed IVA, you could be debt-free in as little as 5 years, and still keep trading. A significant amount of the debt you are personally liable for can be written off. What’s more, you should be able to repay the rest in manageable monthly payments – with no added interest, no threats of legal action, and no more chasing from your creditors.

Partnership Voluntary Arrangement (PVA)

While partners can enter into an Individual Voluntary Arrangement, a partnership itself would have to enter into a PVA.


If your partnership cannot afford to pay its debts, or the value of its assets is less than the total debt it owes, then it may be declared insolvent. 

Your Partnership may be declared ‘insolvent’ if it has received a ‘statutory demand’, and has been unable to reach arrangements to repay the debt.

If your partnership is facing difficulty with debts, get in touch with PayPlan today. We will help you find a solution that’s right for you.

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