Joint and Several Liability in Partnerships

10 August 2017

What does Joint & Several Liability mean in respect to partnerships?

A partnership is a trading entity made up of a number of individual people known as "members". In insolvency there is no protection for the partnership's individual members as in a limited liability company. The individual partners or members are fully liable for the partnership debts if the partnership cannot meet them.

Joint and Several Liability

This implies that all members are liable for the partnership debts in full or in part individually, dependent usually 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.

Trading as a partnership can carry some tax rewards and other benefits but when things go wrong or the partnership becomes insolvent (or only 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 individuals have more protection against personal liability. 

If your LLP is under financial pressure, see our page on the options available: https://www.companyrescue.co.uk/company-rescue/options/llp-or-company-lawyers-cashflow-problems 

The Ultimate Guide For Worried Directors

The Ultimate Guide For Worried Directors

Worried about poor cashflow? How to win new work? How to pay wages on pay day? For expert advice on a range of issues download our free Ultimate Guide For Worried Directors today.