Joint and Several Liability for Debts in A Partnership

19 October 2020

Joint and Several Liability for Debts in A Partnership

A partnership is a trading entity made up of a number of individual "members". In insolvency there is no protection for each of the members of the partnership, as in a limited liability company. Therefore, the individual partners are fully liable for the partnership debts if the partnership cannot meet them.

What is Joint and Several Liability?

These terms imply that all members are liable for the partnership debts in full or in part individually, dependent on their ability to pay. Thus a creditor(s) /liquidator can "go after" the member with the most assets to satisfy debts, then the next and so on until all debts are satisfied or until all partners are made bankrupt.

Joint and Several Liability will apply to you and your partner, so long that you have a joint account, a partnership account and two or more people have signed a guarantee or mortgage for a joint liability.

Trading as a partnership can carry some tax rewards and other benefits but when things go wrong or the partnership becomes insolvent (or even if an individual partner becomes insolvent) a partnership can be a nightmare to deal with. There are powerful arguments to incorporate a fast growing partnership or one that is increasing its debts especially where tightly drawn up partnership agreements are NOT in place.

See Domino Effect for further details.

Limited Liability Partnership (LLP)

If you are in a Limited Liability Partnership, you have slightly more protection than if you were in a partnership. Doctors, accountants, lawyers and other professions often choose this business structure to ensure as individuals, they have more protection against personal liability. 

If your LLP is under financial pressure, see our page on the options available

A Worried Director

The Ultimate Guide For Worried Directors

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Please note that the guide was mostly written pre Covid-19 and there have been some changes to insolvency legislation that limits creditors actions and relaxes rules regarding wrongful trading.  A new 20 day moratorium for distressed businesses has also been introduced. 

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