PA 1890 s. 1

Business in common with a view of profit: PA 1890 s. 1

Partnership is the relation subsisting between persons carrying on a business in common with a view of profit. Companies Act 2006 members are excluded.

Official text PA 1890 s. 1 — United Kingdom

Partnership is the relation which subsists between persons carrying on a business in common with a view of profit. But the relation between members of any company or association which is— registered under the Companies Act 2006, or Formed or incorporated by or in pursuance of any other Act of Parliament or letters patent, or Royal Charter; . . . . . . is not a partnership within the meaning of this Act.

Text in force at .

Source: legislation.gov.uk — The National Archives (legislation.gov.uk), reproduced under licence Open Government Licence v3.0.

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What it actually says

Section 1 is one sentence and it is the reason so many people are partners without knowing it: "Partnership is the relation which subsists between persons carrying on a business in common with a view of profit." There is no requirement for a written agreement, no registration, no declaration of intent. If two people are carrying on a business in common with a view of profit, the relation exists and the whole of the Act applies to them by default.

Each limb does work. "Business" is wide but not unlimited - a single joint venture can qualify, but sharing a house or an investment property normally does not. "In common" means carried on by or on behalf of all of them, which distinguishes a partner from an employee or a lender. "With a view of profit" excludes clubs, charitable ventures and cost-sharing arrangements, though the business does not have to have made any profit for the definition to be satisfied.

The second part of the section excludes companies: the relation between members of a company registered under the Companies Act 2006, or formed or incorporated by another Act, letters patent or Royal Charter, is not a partnership within the Act. So people who incorporated are governed by company law, and people who never got round to it are governed by this Act - including, by default, the equal-shares rule in section 24 and the joint liability rule in section 9. Whether a particular arrangement is a partnership is a question of substance decided on the evidence, and section 2 gives the rules for answering it.

When it applies

  • Two friends who started trading together and never wrote anything down.
  • A working arrangement that one party now says was employment and the other says was partnership.
  • A joint venture on a single project where the parties dispute what relationship they were in.
  • Someone who invested in a friend's business and is being pursued by its creditors.
  • Deciding whether an unincorporated business needs to be wound up under this Act.

What this section does not say

  • It does not require a written agreement. The relation arises from the facts, and the Act's default rules apply where nothing else was agreed.
  • It does not cover companies. Members of a registered company are outside the definition.
  • It does not cover limited liability partnerships, which are creatures of the Limited Liability Partnerships Act 2000.
  • It does not make joint ownership a partnership. Section 2(1) says so expressly.
  • It does not require profits to have been made. What matters is that the business is carried on with a view of profit.

Worked examples

Invented situations, written to show how the wording bites. They are not real cases, not judgments and not precedent, and nothing here predicts what would happen in yours.

Illustrative example

Two friends ran a market stall together for three years, split the takings after costs and shared the work. After a falling-out one of them says it was always his business and the other was only helping out.

How the wording applies

The definition needs no written agreement, no registration and no declaration: it is the relation subsisting between persons carrying on a business in common with a view of profit. The fact that decides which of the two accounts is right is 'in common' - whether the business was carried on by or on behalf of both of them, which shows up in who bore the losses, who dealt with suppliers and whose name was on the pitch, rather than in what either now says about it.

How the parties settled it

They agree the stall was a partnership from the first season, that stock and the trailer are shared equally, and that one buys the other out at an agreed figure with the takings from the current season split as before.

Illustrative example

Someone put money into a friend's venture and helped at weekends. The venture has failed and creditors are now writing to the investor as well as to the friend.

How the wording applies

Whether the Act applies at all is the whole question, because if the relation exists then unlimited personal liability under section 9 comes with it. The fact that decides it is whether the business was carried on in common with a view of profit - the distinguishing feature between a partner and a lender or a helper - and the detailed tests for that are in section 2, particularly the treatment of a share of profits.

How the parties settled it

They agree in writing that the money was a loan repayable from any recovered assets, notify the creditors of the basis on which the investor participated, and the friend takes responsibility for the trade debts.

Related sections

PA 1890 s. 2 Sharing profits does not make a partner: PA 1890 s. 2 PA 1890 s. 24 Equal profits split, no salary rules: PA 1890 s. 24 PA 1890 s. 9 Partners Are Jointly Liable for Firm Debts: PA 1890 s. 9 PA 1890 s. 5 One partner's acts bind the firm: PA 1890 s. 5

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This page reproduces the text of PA 1890 s. 1 in force at the date shown and explains it in general terms. It is not legal advice and takes no account of the circumstances of your case, which can change the answer completely. For a live dispute, for limitation periods, and before taking any step in court, consult a qualified lawyer in England and Wales.

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