In a general partnership every partner is personally liable, without limit, for the firm’s debts. Under the Partnership Act 1890, contract debts are joint (section 9) and liability for wrongs such as negligence or fraud is joint and several (sections 10 to 12). A new partner is not liable for debts incurred before joining, but a retiring partner stays liable for debts incurred before leaving and can be caught by later debts unless creditors are properly notified.

What is the difference between joint and several liability?

Section 9 makes every partner “liable jointly with the other partners, and in Scotland severally also, for all debts and obligations of the firm incurred while he is a partner”. Section 12 makes every partner liable jointly with the other partners “and also severally” for anything the firm becomes liable for under sections 10 and 11, which cover wrongful acts or omissions of a partner in the ordinary course of business and misapplication of money or property received by the firm.

Joint liability means the partners share one obligation to the creditor. Several liability means each partner owes it individually as well. In practice the distinction has narrowed. Section 3 of the Civil Liability (Contribution) Act 1978 provides that judgment against one person jointly liable for a debt does not bar an action against any other person jointly liable for it, so a creditor who sues one partner and is not paid in full can go on to sue the others. The ACCA’s partnership factsheet notes one remaining trap: for joint contractual debts, a compromise with one partner can operate to release the others.

The key point for partners is that either form of liability exposes each partner’s personal assets to the whole of the firm’s debt, not just a proportionate share. Who ultimately bears the cost is then a question between the partners.

When is the firm bound by what one partner does?

Section 5 makes every partner an agent of the firm and of the other partners for partnership business. An act done in carrying on business of the kind the firm carries on, in the usual way, binds the firm unless the partner had no actual authority and the third party knew that or did not know or believe them to be a partner. Section 6 adds that acts done in the firm name by anyone authorised bind the firm. The limits are:

  • pledging the firm’s credit for a purpose apparently unconnected with the firm’s ordinary business does not bind the firm unless specially authorised (section 7);
  • an internal restriction on a partner’s authority protects the firm only against those who have notice of it (section 8);
  • a partner who is a trustee and improperly uses trust property in the business does not make the other partners liable for it, unless they had notice of the breach of trust (section 13).

The ACCA factsheet summarises a case in which partners in an accountancy firm were held liable for a senior partner’s fraud in forging share transfer forms, because buying and selling shares for clients was within the ordinary business of such a firm.

Who pays in the end?

As between the partners, the firm must indemnify a partner for payments and personal liabilities incurred in the ordinary and proper conduct of the business (section 24(2)), and losses are shared equally unless the partners agreed otherwise (section 24(1)). Under section 1 of the Civil Liability (Contribution) Act 1978, a person liable for damage can recover contribution from anyone else liable for the same damage. So a partner who pays a creditor in full has rights against the others, but those rights are only as good as the other partners’ solvency.

Section 9 also deals with death: a deceased partner’s estate is severally liable for firm debts left unpaid, but in England, Wales and Northern Ireland only after the deceased’s separate debts have been paid.

Is a new partner liable for the firm’s existing debts?

Not by joining. Section 17(1) provides that a person admitted as a partner into an existing firm does not thereby become liable to the firm’s creditors for anything done before they became a partner. The ACCA notes that incoming partners often agree, as between themselves and the continuing partners, to share existing liabilities, and that a creditor can hold the new firm liable for old debts only where there has been a novation. Section 18 adds that a continuing guarantee given to or for a firm is, absent agreement, revoked as to future transactions by any change in the firm’s constitution, which is significant for banks and suppliers who rely on guarantees. New partners should also check the firm’s insurance position and the indemnities in the partnership agreement.

Does a retiring partner stay liable?

Yes, for the past. Section 17(2) says a retiring partner does not cease to be liable for debts or obligations incurred before retirement. Section 17(3) allows a retiring partner to be discharged from existing liabilities by an agreement between them, the newly constituted firm and the creditors, which may be express or inferred from the course of dealing. Without that, the usual protection is an indemnity from the continuing partners, which is only as good as their means.

The retiring partner can also be caught by future debts. Under section 36(1), someone dealing with the firm after a change may treat all apparent members of the old firm as still being members until they have notice of the change. An advertisement in the London Gazette (Edinburgh or Belfast Gazette for firms based there) is notice to people who had no dealings with the firm before the change (section 36(2)); existing customers and suppliers need to be told directly. Section 36(3) protects the estate of a partner who dies or becomes bankrupt, and a retiring partner who was not known to the creditor to be a partner. Separately, section 14 makes anyone who knowingly allows themselves to be held out as a partner liable to those who give credit on that basis, so names should come off letterheads and websites promptly.

For VAT, section 45(2) of the Value Added Tax Act 1994 treats a former partner as continuing to be a partner until the change is notified to HMRC, and section 45(5) makes a partner who was in the firm for only part of a VAT period liable for a just proportion of that period’s VAT.

Are partners liable for each other’s tax?

Partly. HMRC explains at PM136000 that a partnership is transparent for income tax: the partnership has no tax liability and each partner is taxed on their own share of profit. One partner’s personal income tax bill is not a firm debt. However, the partners jointly are responsible for some tax debts, such as PAYE and VAT, which are firm liabilities within section 9. See partners joining and leaving: the tax consequences.

What happens if the firm becomes insolvent?

The Official Receiver’s guidance explains that the Insolvent Partnerships Order 1994 applies the Insolvency Act 1986, with modifications, to partnerships. A creditor can petition to wind up the firm as an unregistered company, with or without concurrent bankruptcy petitions against partners, and can also petition against one or more partners alone. Where the firm is wound up, partners become contributories with unlimited liability for the deficiency. Joint creditors are paid from the partnership estate first; any shortfall then ranks equally with each partner’s own creditors in that partner’s separate estate.

How does this work in practice?

Illustration only. Eve, Faisal and Gina are equal partners. A client sues for £300,000 after negligent advice given by Faisal in the ordinary course of business, and the firm’s insurance does not respond. The client can recover the whole sum from Eve alone, because liability for the wrong is joint and several under section 12. Eve can then claim an indemnity from the firm and contribution from Faisal and Gina, so that each ultimately bears £100,000, or, if the agreement allocates losses differently, the agreed proportions. If Gina retired the year before but the advice was given while she was a partner, she remains liable under section 17(2).

What mistakes do partners make about liability?

  • Assuming liability is split by profit share. Outsiders can pursue any partner for everything.
  • Retiring without telling clients and suppliers or placing a Gazette notice, and without notifying HMRC for VAT.
  • Relying on an indemnity from continuing partners without checking whether they can pay it.
  • Thinking an LLP style limitation applies to a general partnership. Only an LLP, or limited partners in a limited partnership, have that protection. The legal nature of a general partnership explains why.

Company directors can protect the business against the cost of an HMRC check with tax investigation insurance, which pays up to £100,000 of accountant’s fees with Solar Protect. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.