Question

Explain the concept of joint and several liability as it applies to a partnership

Answer 1

What does Joint & Several Liability mean in respect to partnerships?

A partnership is a trading entity made up of a number of individual people known as "members". In insolvency, there is no protection for the partnership's individual members as in a limited liability company. The individual partners or members are fully liable for the partnership debts if the partnership cannot meet them.

Joint and Several Liability

This implies that all members are liable for the partnership debts in full or in part individually, dependent usually on their ability to pay. Thus a creditor(s) /liquidator can "go after" the member with the most assets to satisfy debts then the next and so on until all debts are satisfied or until all partners are made bankrupt.

Trading as a partnership can carry some tax rewards and other benefits but when things go wrong or the partnership becomes insolvent (or only even if an individual partner becomes insolvent) a partnership can be a nightmare to deal with. There are powerful arguments to incorporate a fast growing partnership or one that is increasing its debts especially where tightly drawn up partnership agreements are NOT in place.