AI Tutor
Imagine opening a design studio with a friend, only to discover they secretly signed a $100,000 supplier contract that the business cannot pay. Can the debt collectors take your personal savings and car to settle the bill?
The answer depends entirely on your legal partnership structure.

General Partnerships (Partnership Act 1890)

Under the Partnership Act 1890, a partnership is defined as the relation between persons carrying on a business in common with a view of profit.
A general partnership has no separate legal personality, meaning the law sees the partners and the business as the exact same entity.
Because there is no legal barrier, general partners face unlimited liability that is both joint and several, meaning a creditor can sue all partners together or pick one partner to pay the entire debt.
What if an investor wants to inject money into your firm without risking their personal life savings?

Limited Partnerships (1907 Act)

To encourage passive investment, the UK Parliament passed the Limited Partnerships Act 1907, introducing a two-tier ownership structure.
A limited partnership must have at least one general partner who manages daily operations with unlimited liability, and at least one limited partner who only contributes capital.
A limited partner keeps their limited liability shield only as long as they stay out of day-to-day management; if they make management decisions, the law automatically strips their protection.