Partnerships in Construction: The Risks Nobody Warns You About

‍‌‌​‌‌​‌​​​​‌‌‌​‌​‌​‌‌‌‌‌​‌​‌​‌‌‌‍SiteKiln gives you plain-English information, not legal advice. If you need advice specific to your situation, talk to a qualified solicitor and accountant before entering any partnership arrangement.

Two builders shaking hands and "going halves" is how a lot of partnerships start. The law still treats that as a real partnership, with real joint liability, even if you never write a word down.

1. What a partnership actually is (Partnership Act 1890)

Under the Partnership Act 1890, a partnership is "the relation which subsists between persons carrying on a business in common with a view of profit".

Key points:

• You don't need to register or sign anything -- if two or more of you are running a business for profit together, you may already be in a partnership.
• If there is no written partnership agreement, the default rules in the Act kick in automatically.
• A basic partnership is not a separate legal person -- it's just the partners trading together.

So "we're just sharing everything 50/50" is, in law, a partnership -- with all the shared risk that implies.

2. Default rules if you don't write an agreement

If you don't have a proper agreement, the Act fills the gaps:

• Profits shared equally -- regardless of who put in more money or work.
• Each partner has an equal say in management and can bind the firm in deals with third parties.
• Partners are jointly liable for all partnership debts and obligations while they're a partner.
• A partner cannot be expelled by the others unless you all agreed a power to expel in advance.
• The partnership can automatically end on death or bankruptcy of a partner unless you've agreed otherwise.

That's why casual "50/50" setups cause so many fallouts -- the law assumes equal everything unless you've written something different.

3. The big downside: joint and several liability

In a normal (unlimited) partnership:

• Each partner is jointly liable for the firm's debts and obligations while they're a partner.
• If one partner does something negligent in the course of the business (say, botches a job), all partners can be liable for the resulting claim.
• Creditors can chase any one partner for all the debt, not just "their share" -- then you argue between yourselves later.

So if your mate signs a daft supply agreement or runs up a £50k merchant bill, the supplier can legally chase you for the lot if you're partners.

4. LLPs -- same team, limited liability

The Limited Liability Partnerships Act 2000 introduced the LLP:

• An LLP is a separate legal entity, like a company, with its own legal personality.
• Members' liability is normally limited to what they've put in or agreed to contribute, not all partnership debts.
• Tax-wise, an LLP is usually treated like a partnership -- profits are taxed on the members, not the LLP itself (it doesn't pay Corporation Tax in the usual way).
• It sits somewhere between a traditional partnership and a limited company -- partner-style flexibility, but with limited liability and Companies House filings.

LLPs suit professional outfits and some bigger construction consultancies. For two working tradespeople, a limited company is often simpler -- but LLPs are worth knowing exist if you want partnership-style profit sharing with limited liability.

5. Partnership vs LLP vs company -- which for a small construction outfit?

For two or three trades wanting to "go in together" on site-based work, the usual sensible options are:

• Don't form a partnership at all -- either one person runs the company and employs/engages the others, or
• Set up a company or LLP with a proper agreement, not an informal unlimited partnership.

6. If you are going to be a partnership, get an agreement

If you decide a traditional partnership is still the right fit, you must have a written partnership agreement. It should cover at least:

• Capital and profit shares -- who put in what, who gets what, and can that change over time.
• Decision-making -- what each partner can decide alone vs what needs joint agreement.
• Drawings -- how much partners can take out and when; what happens if someone overdraws.
• Roles and responsibilities -- who runs jobs, who does admin, who signs contracts and cheques.
• Admitting new partners -- how someone joins, what they pay in, how you agree their share.
• Exit and death -- what happens if someone wants out, retires, dies, or becomes incapable; how shares are valued and paid.
• Restrictive covenants -- basic "don't set up next door tomorrow and pinch all the clients" rules, drafted sensibly.

If you don't cover it in writing, the Partnership Act fills in with blunt, old-fashioned defaults.

7. Common mistakes

• Running everything as an informal 50/50 partnership with no agreement, then falling out over who does more work and who takes more money.
• Signing big contracts or guarantees as a partnership without realising every partner is on the hook for all of it.
• Treating a partnership like a company -- assuming you have limited liability when you absolutely don't.
• Not planning for exit or death -- leaving the other partner tangled with the estate.
• Not updating insurance to match the legal structure -- wrong firm name, partners not listed, policy doesn't cover the arrangement.

If you're already in that boat, a chat with a solicitor and accountant about moving to a company or LLP is often money well spent.

8. Who to contact

• A solicitor -- to draft a short, clear partnership or LLP agreement that reflects how you actually want to work. Look for one who does business/commercial law, not just conveyancing.
• Your accountant -- to compare tax and structure: partnership vs LLP vs company for your specific numbers.
• Your insurance broker -- to make sure the policy matches the legal structure (firm name correct, partners or directors properly listed).
• Companies House -- if setting up an LLP or company: gov.uk/limited-company-formation or gov.uk/register-a-limited-liability-partnership (free guidance, small registration fee)

9. Sources and legislation

• Partnership Act 1890 -- defines partnerships, default rules on profit sharing, liability, dissolution. legislation.gov.uk/ukpga/Vict/53-54/39
• Limited Liability Partnerships Act 2000 -- creates LLPs as separate legal entities with limited liability. legislation.gov.uk/ukpga/2000/12
• Companies Act 2006 -- framework for limited companies. legislation.gov.uk/ukpga/2006/46
• Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009 -- applies parts of the Companies Act to LLPs. legislation.gov.uk/uksi/2009/1804

10. Related guides on this site

• 8.1 Sole trader vs limited company -- honest comparison
• 8.2 Companies House basics -- annual filings, confirmation statements
• 8.16 Scaling from one-man band to small firm
• 8.18 Closing down a limited company -- the proper way
• 6.1 Public liability insurance
• 6.2 Employers' liability insurance

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