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Partnerships and LLP Regulation

Part of our SQE1 Business Law and Practice guide → View the full SQE1 Business Law and Practice guide

09 May 2026

Understand partnership law, fiduciary duties, LLP structure, and dissolution procedures tested in SQE1 exams.

Partnerships and LLP Regulation

Business Law and Practice > Partnerships and LLP Regulation

A solicitor quietly pockets a £50,000 client commission while their partner is kept in the dark. Months later, when discovered, they claim "it's my personal business." But the law says otherwise—and if you miss this in the exam, you'll lose marks fast. Partnership law is ruthless: one clause, one principle misunderstood, and your answer collapses. This guide reveals exactly what the examiners test, the traps they set, and the partnership structures that catch candidates unprepared. We cover general partnerships, limited partnerships, LLPs, partner duties, and dissolution procedures.

What is Partnership and LLP Regulation in SQE1?

Partnership law governs how two or more people carry on business with a view to profit. Partnerships are widely used in professional practices (law, accountancy) and small businesses. Limited liability partnerships (LLPs) are a hybrid vehicle that combines elements of partnerships and companies. For SQE1, you need to understand the different partnership structures, partner duties, liability exposure, and how partnerships are dissolved.

Key Principles for SQE1

  • General Partnership (PA 1890 s.1): A partnership is the relationship existing between persons carrying on a business in common with a view to profit. A general partnership does not have a separate legal personality (it is not a legal entity distinct from its partners).

  • Partner as Agent (s.5 PA 1890): Every partner is an agent of the firm and of the other partners. A partner can bind the firm to a contract entered into in the ordinary course of business, unless the partner lacked authority and the third party knew this. This is closely related to Agency in Business Transactions.

  • Liability for Debts (s.9 PA 1890): Partners are jointly liable for debts and obligations. Creditors must pursue the partnership assets first, then can pursue individual partner assets. A partner's personal creditors can reach partnership assets to satisfy the partner's personal debts.

  • Liability for Torts (s.12 PA 1890): Partners are jointly and severally liable for torts committed by a partner in the ordinary course of business. Each partner can be sued individually for the full amount; the victim can pursue any or all partners.

  • Profit Sharing (s.24 PA 1890): In the absence of a partnership agreement, partners share profits equally. Partners are not entitled to a salary (unless agreed).

  • Partnership Agreement: Not legally required. If there is no agreement, the Partnership Act 1890 provides default rules. In practice, partnerships almost always have a deed because the defaults are often unsuitable.

  • Fiduciary Duties (ss.29-30 PA 1890): Partners must account to the firm for any profit made using firm property or opportunities (s.29). Partners must not compete with the firm without consent (s.30). These duties are strict and may not be easily contracted out of, distinguishing partnerships from other types of business organisations.

  • Limited Partnership (Limited Partnerships Act 1907): A general partner has unlimited liability; a limited partner has liability limited to their capital contribution. A limited partner must not take part in management (if they do, they lose limited liability). Limited partnerships are rare in practice because LLPs are now preferred.

  • LLP - Limited Liability Partnership (LLP Act 2000): An LLP is a body corporate (a separate legal entity distinct from its members). Members have limited liability (usually to capital contributed). An LLP must register at Companies House and file accounts like a company. Members owe fiduciary duties to the LLP and to each other. An LLP is taxed as a partnership (not a company), making it tax-transparent like partnerships—see Business Taxation and Financial Obligations.

  • LLP Registration and Accounts: An LLP must file a constitutional document (LLP agreement or deed) and accounts at Companies House. Accounts must give a true and fair view (like a company). Failure to file is a breach and can lead to member liability.

  • Dissolution - Agreement or Notice (s.26/s.32 PA 1890): A partnership can be dissolved by agreement or by written notice from one partner (unless the partnership agreement says otherwise). Dissolution is immediate.

  • Dissolution - Illegality (s.34 PA 1890): A partnership is automatically dissolved if its purpose becomes unlawful.

  • Dissolution - Death or Bankruptcy (s.33 PA 1890): A partnership is automatically dissolved if a partner dies or becomes bankrupt (unless the partnership agreement says otherwise).

  • Dissolution - Court Order (s.35 PA 1890): A court can order dissolution if a partner is incapable, in breach of the partnership agreement, or if it is just and equitable.

  • LLP Winding Up: An LLP that becomes insolvent is wound up following company insolvency procedures. Creditor priority is similar to company liquidation.

Exam tip

In SQE1 questions, examiners often test whether you can distinguish between automatic dissolution (death, bankruptcy, illegality) and dissolution by choice (agreement, notice). Missing this distinction costs marks. Always check the partnership agreement first—it may override the default rules.

Quick Comparison: General Partnership vs LLP

| Feature | General Partnership | LLP | |---------|---------------------|-----| | Legal Personality | No (not a separate entity) | Yes (body corporate) | | Partner Liability | Unlimited (jointly and severally for torts) | Limited (to capital contributed) | | Partner as Agent | Yes (s.5 PA 1890) | No (unless authorized) | | Profit Sharing Default | Equal (s.24 PA 1890) | As agreed (deed required) | | Fiduciary Duties | Yes (ss.29-30 PA 1890) | Yes (similar, by implied contract) | | Registration | Not required | Required at Companies House | | Accounts Filing | Not required (unless statutory threshold) | Required (true and fair view) | | Taxation | Partnership is transparent (members taxed individually) | Similar—taxed as partnership, not company | | Dissolution | Agreement, notice, illegality, death, bankruptcy, court order | Similar (but formal winding up if insolvent) | | Separate Property | Partnership has no separate assets | LLP owns assets; partners are not owners |

Quick Summary

  • General partnerships have no separate legal personality; partners are personally liable for partnership debts (joint) and torts (joint and several)
  • PA 1890 default rules: equal profit sharing, no salary, no compensation if partners invest capital
  • Fiduciary duties (ss.29-30 PA 1890): partners must account for profits made using firm property or opportunities; cannot compete without consent
  • Limited partners must not take part in management or they lose limited liability protection (rare structure; LLPs now preferred)
  • LLP is a body corporate with limited liability for members, but taxed transparently like a partnership (not corporation tax)
  • No written partnership agreement required, but PA 1890 defaults are often unsuitable—deed always recommended

How This Appears in SQE1 Questions

Scenario: Two partners form a firm with no written agreement. The firm makes £200,000 profit in year one. One partner claims the entire profit is theirs because they brought the clients. How is the profit split in the absence of an agreement?

You'll encounter scenarios asking you to:

  • Identify the partnership structure: Is it a general partnership, limited partnership, or LLP? What are the legal consequences of the choice?

  • Address partner liability: Can a third party sue a partner personally? Are partners jointly liable or jointly and severally liable? The answer depends on whether it's a debt (joint) or a tort (joint and several).

  • Apply partner agency rules: Did a partner bind the firm to a contract? Did the partner have actual authority, apparent authority, or neither?

  • Advise on fiduciary duties: Must a partner account for a profit? Can a partner compete? Must they disclose conflicts?

  • Address dissolution and winding up: How is a partnership dissolved? What happens to assets and liabilities?

Common Mistakes Students Make

  • Assuming a partnership is a separate legal entity: A general partnership does not have separate legal personality. Partners are the legal owners of the assets. An LLP does have separate personality.

  • Forgetting the PA 1890 default rules: If there is no partnership agreement, profit is shared equally. Partners get no salary. These defaults apply unless contracted out of.

  • Confusing general partnership liability with company liability: Partners are personally liable for partnership debts and torts; shareholders in a company are not. This is a critical exam trap.

  • Thinking a limited partner can manage: A limited partner who takes part in management loses limited liability and becomes a general partner. This is a crucial distinction.

  • Confusing LLP dissolution with company liquidation: An LLP is wound up like a company if insolvent, but day-to-day dissolution (by agreement or notice) is simpler.

  • Overlooking fiduciary duty breaches: Partners owe strict fiduciary duties to account for profits and not compete. These are implied into every partnership. This mirrors (but is distinct from) the duties owed by company directors—see Company Management and Decision-Making for the director equivalent.

  • Missing the registration requirement for LLPs: An LLP must be registered at Companies House. Failure to do so can lead to personal liability for members.

Test Yourself

Want to test this now? Try a few SQE1-style questions below before moving on.

Test yourself

Quick check questions based on this article.

Question 1

Scenario

George and Hannah are members of an LLP providing management consultancy services. The LLP has been trading for four years and has accumulated significant debts. The members' agreement provides that members must contribute to losses in proportion to their profit shares, which are 60% (George) and 40% (Hannah). The LLP enters insolvent liquidation. The liquidator identifies that George withdrew £100,000 from the LLP in the two years prior to liquidation. The withdrawals were made as drawings against anticipated profits, but the LLP was in fact making losses during this period. Hannah withdrew £40,000 during the same period. The LLP's creditors are owed £500,000 and the LLP's remaining assets are £200,000. George argues that his drawings were properly authorised under the members' agreement. He recently sold his personal investment portfolio, though this is not connected to the LLP's business.

Which of the following best describes the liquidator's position regarding George's withdrawals?

Question 2

Scenario

Rita, Sam, and Tara operate a general partnership providing translation services. The partnership has been trading for eight years. The partnership agreement provides for a fixed term of 10 years and contains no retirement or expulsion clauses. Sam receives a client's payment of £30,000 into his personal bank account instead of the partnership account. He does not disclose this to Rita and Tara. He uses £10,000 of the money to pay personal debts and retains the remaining £20,000. Rita discovers the misappropriation three months later. She confronts Sam, who admits to receiving the payment but argues that his profit share would have been £10,000 in any event, so the partnership is only out of pocket by £20,000. Tara is unaware of the situation. Sam has recently booked a holiday to Japan, though this is not connected to the misappropriation.

Which of the following best describes the liability of the partnership and Sam to the client in relation to the misapplied funds?

Question 3

Scenario

Grant and Holly are members of an LLP providing financial advisory services. The LLP is authorised by the Financial Conduct Authority. Grant also acts as a sole practitioner solicitor, separate from the LLP. A mutual client asks the LLP to advise on both a financial restructuring and the related legal documentation. Grant, in his capacity as a member of the LLP, begins work on the financial advice. He then, without informing Holly, also drafts the legal documentation through his separate sole practice and charges the client separately. Holly discovers Grant's arrangement and argues that the legal work should have been done through the LLP. Grant argues that the legal work is outside the LLP's scope. The LLP's members' agreement requires members to devote their full professional efforts to the LLP's business. Holly recently attended a conference on fintech regulation, though this is not relevant to the dispute.

Which of the following best describes Grant's position in relation to the legal work performed through his sole practice?

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