Law guide: Business start-up

See how we helped Michael

"Fantastic! The legal document I used was so comprehensive and easy to complete. It is very reassuring to know my business now has this level of protection"

Michael S, London

Liability of outgoing partners

Liability of outgoing partners

The general rule is that someone who has left the firm before the debts and liabilities were created won't be liable for those debts and liabilities.

However, the person may still be liable in the following situations discussed below.

Person liable by holding out

If a person represents themselves (or 'holds themselves out') as a partner at the time the debts were incurred, the creditor of the partnership who relied on this representation can hold that person liable for those debts. The person could have made the representation orally, in writing or even implying it in their behaviour. The representation can also be made by the partnership or by another person, as long as the partner held out knew about it and did nothing to correct the representation.

Person liable by failure to notify leaving

Partners leaving the partnership, must give notice that they're leaving, otherwise they can become liable for debts incurred after they leave. The notices should include:

  • actual notice to all those who have dealt with the partnership before the partner leaves; and
  • an advertisement in The Gazette to tell anyone else who did business with the partnership.

A creditor might be unaware of the partner's leaving because the type of notice appropriate to them wasn't given. In this case, the creditor will be able to take action against the former partner for the firm's debts, even though they're no longer a partner.

This is because the creditor can assume that the membership of the partnership continues unchanged until proper notice is given.

No notice needs to be given that a partner has died or become bankrupt. That partner won't be liable for the debts or liabilities incurred after their death or bankruptcy.

Liability under a novation agreement

A novation agreement is a 3-way contract involving the creditor of the firm, the partner leaving and a new incoming partner. Under a novation agreement, the parties can agree that the creditor will release the partner who is leaving from their liability and instead, the incoming partner will take on the liability.

Related services

  • Partnership agreement
    Compatible region(s): England & Wales
    £179.99

Copyright © 2022 Epoq Group Ltd. All trademarks acknowledged, all rights reserved

This website is operated by Epoq Legal Ltd, registered in England and Wales, company number 3707955, whose registered office is at 2 Imperial Place, Maxwell Road, Borehamwood, Hertfordshire, WD6 1JN. Epoq Legal Ltd is authorised and regulated by the Solicitors Regulation Authority (SRA number 645296).

Our use of cookies

We use necessary cookies to make our site work. We would also like to set some optional cookies. We won't set these optional cookies unless you enable them. Please choose whether this site may use optional cookies by selecting 'On' or 'Off' for each category below. Using this tool will set a cookie on your device to remember your preferences.

For more detailed information about the cookies we use, see our Cookie notice.

Necessary cookies

Necessary cookies enable core functionality such as security, network management, and accessibility. You may disable these by changing your browser settings, but this may affect how the website functions.

Performance cookies

We'd like to set cookies to help us to improve our website by collecting and reporting information on how you use it. For more information on these cookies, please see our Cookie notice. The cookies collect information in an anonymous form. Data is only used in aggregate.

Functionality cookies

We'd like to set cookies to provide you with a better customer experience. For more information on these cookies, please see our Cookie notice.