Share this content

Partner Introduced

Basic Q, just want to check it through.

Sole trader dentist, turnover £150k and profits £80k.  Net assets £60k, being mainly small property and some equipment.

Wishes to introduce new partner into business.  Share income profits and gains equally from now on.

What is the best way to approach this in terms of ring fencing the existing net assets.  (the property has not been revalued).  Is this by way of special mention in the partnership agreement. Or does the fact that the capital account of incoming partner being at zero just evidence the split. 

Does the disposal of a 50% stake in the business need reporting at all? 


Please login or register to join the discussion.

By okevin
04th May 2011 10:56


The incoimng partner has been asked to contribute £25k into the partnership bank account as a show of commitment.  Nothing will be paid to the sole trader directly.


Thanks (0)
04th May 2011 11:40

Get a lawyer

This is really a legal question more than an accounting one. I would strongly recommend getting a lawyer to write up a formal partnership agreement. Whilst advice on here might point out the things you need to make sure are included, the value of a professional in this context far outweighs the costs.

There is no disposal of the 50% of the business. As you are saying that the assets prior to the partnership are to be ring-fenced then none of these assets are being passed to the new partner. It is only acquisitions in the future that will be affected by the new arrangements. Partners can, and often do, have different interests in the underlying assets.

To ringfence the previously introduced assets,you need to ensure there is a clause to this effect in the partnership agreement. In effect the partnership is a new business that was previously carried on as a sole trader. The clause should say that the existing sole trader retains the right to all profits on disposal of the assets of the existing business introduced at the time of the partnership agreement. This means that, if the property has gone up in value, all that increase in value is assigned to the original sole trader. This also prevents a disposal for capital gains purposes arising.

You also need to consider any ongoing contracts in the sole traders name. If these are to be contnued in the partnership then these are likely to need amending. How easy it will be to arrange this will depend on the contracts. Some businesses may perceive the change in business structure as a change in risk and seek to amend the contract accordingly.



Thanks (0)