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Breaking u

6th November 2003
Page 34
Page 34, 6th November 2003 — Breaking u
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Which of the following most accurately describes the problem?

Many small hauliers operate as partnerships, but unless an agreement exists breaking up can be very messy, as Pat Hagan explains.

Simon Edwards has lost count of the times he has heard new partners in road haulage utter the words "oh, well never fall out". As a lawyer with Chester-based Aaron and Partners, part of his job is to help pick up the pieces when they do.

The tragedy is that it almost invariably involves emotional trauma too. Often, it may be a husband and wife working as a partnership but splitting up because the marriage has hit the rocks. Sometimes it's relatives running a small family firm, or even just good friends.

Because the vast majority of partnerships are based on unlimited liability. the fallout can destroy lives. People often end up losing their homes. cars and even personal belongings.

Yet, for the sake of around £1,000, much of the heartache could be avoided by getting a partnership agreement drawn up before starting work. The vast majority of partnerships in the UK haulage industry do not have such an agreementwith luck they'll never need one.

"The problem is, if it's a husband and wife,not only does he go bankrupt but so does she," says Edwards. "Then they lose everything."

So what is partnership all about and what do you need to know in case things go wrong?

What is the definition of a partnership?

The law on partnership the Partnership Act dates back to around 1890 and defines it as "two or more people carrying out business in common with a view to producing a profit-. That usually means sharing the responsibility and decision-making of the business. The maximum number of partners is 20, unless it is a professional organisa lion such as solicitors or accountants.

What are the advantages of a partnership?

Unlike a limited company. you don't have to register your business with the Register of Companies. There are no shareholders, so it's left to the partners to sort out how they divide up managerial responsibilities and the profits they make. Each partner is liable for his or her own tax.

And the disadvantages?

Until recently, partnerships had to have unlimited liability, which means that if the business flops, everything you own from your house to the money in your bank accounts and your savingscan be seized to pay off your debts.

What happens when a partnership splits?

The Partnership Act states that any partner can at any time and without notice choose to dissolve the relationship. So if there are 12 people in the partnership, it takes only one to break it down. Even if a partner dies, you have to go through this process unless there is a part nership agreement in place.That's when things start to get messy, says Edwards, because what follows is a particularly drastic and expensive remedy.All the assets of the partnership have to be sold and debts settled from whatever money is raised. In effect. what may be a healthy business is stripped down to the bone.

Do you still have to have unlimited liability?

No. In April 2001 limited liability partnerships (LLPs) were introduced. This allows partners to limit their liability so they don't lose everything they own in the event of failure. It still allows husband and wife partnerships to take advantage of tax concessions and means that if one partner does pull out, the business can still keep going. On the downside, it involves more paperwork as you have to file accounts and other documents to the Register of Companies. "Under LLP, if a business fails you might lose your vehicle, but you won't lose your house," says Edwards.

Is a partnership agreement a good idea?

Yes. Think of It as an insurance policy. Hopefully, you'll never need it but it could save a lot of expense and heartache. Edwards estimates most hauliers should be able to get a good agreement drawn up by a specialist lawyer for between 050 and £1,000,

What should the agreement say?

It can vary. But most law firms with an interest in this area will have a 'template' that can be adapted to your business. The agreement will set out the value of the business, including its assets and income, the precise role of each partner and what happens if one wants to pull out. It will also detail who is contributing what to the business, what they take out of it and even what the direction of the business is going to be. "One of the benefits of doing this is it makes people think about things is advance," says Edwards. •

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People: Pat Hagan
Locations: Chester

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