Partnerships warned to protect themselves
Restructuring can protect from creditors
Businesses operating as partnerships should reorganise their firms to reduce the risk of personal liability for business debts, legal experts warn.
An increasing number of partnerships are being hit by the recession, and many are vulnerable as they have no legal documentation.
Partners at Mace & Jones law firm are urging businesses in partnership to protect themselves and their business from debt by restructuring their partnership to an LLP.
“The wrath of the recession is bearing down on traditional business partnerships which are often not equipped to protect their owners,” said Graeme Jump, partnership unit partner at Mace & Jones. “The prime concern for bosses is their personal liability for the debts of the business. Some partners are finding this very uncomfortable and are wondering how to restructure.”
The structure of an LLP means that a business has a legal liability to third parties, so the personal assets of business owners are not at risk if their firm is in trouble.
Jump added: “Through the mechanisms of individual voluntary arrangements (IVAs), partnership voluntary arrangements (PVA) and administration orders, there is the opportunity to protect the inherent value of the partnership by paying off debts in an orderly way. However, that alone may not be sufficient in some cases.”
IVAs work by allowing a partnership to settle debts within a fixed period of time, normally five years, and any interest and debt charges are frozen and creditors prohibited from demanding additional payments. A PVA allows a partnership to continue trading so that it can repay debts from its current assets and future profits.
© Crimson Business Ltd, 2009