What is a Partnership?

A partnership is an arrangement where individuals (or other entities such as companies) agree to work together for the purposes of making a profit and advancing their common interests. As well as providing a structure to allow two or more people to go in to business together, partnerships also offer a number of tax advantages over companies.

Ordinarily, the partners in a partnership will agree to share the profits and losses of the partnership between them in defined percentages. However, while the partners can agree to share losses between them in defined percentages, the reality is that if one partner is unable to meet his obligations, the other partner(s) can be held personally liable for the full amount of the partnership’s debt and not just their agreed share. In addition to this risk of personal liability, there are also a number of other disadvantages to having a partnership. Some of these disadvantages are set out below.

(i) Firstly, as the actions of one partner can usually bind all other partners, there is a risk that a rogue or errant partner could take actions which could impose potential liability on the other partners.

(ii) Secondly, in the absence of having a carefully drafted partnership agreement, the death or bankruptcy of one of the partners or even the introduction of a new partner could lead to a termination of the old partnership. Furthermore, even where the partnership survives this change in partners, it may need to restructure the ownership of its assets, as well as its trading and financial arrangements, to reflect the change which itself can be costly and time consuming.

(iii) Thirdly, it can be difficult for a partner to sell his interest in the partnership as there is generally not a strong market for potential buyers.

Under Irish law, it is also possible to form a limited liability partnership – although these partnerships are generally only used for complex corporate and tax structures. These partnerships are similar to the general partnerships discussed above except that they have one or more general partners with unlimited liability and one or more limited partners whose liability is limited to the amounts that they contribute to the partnership. In many cases, the general partner will be a limited liability company thereby ensuring that the liability of that partner is also limited.