A crucial but often overlooked legal issue facing many transport operators is the potential loss of an Operator Licence due to outdated rules in the Partnership Act 1890 and the risks posed by poorly structured or informal partnership arrangements.
Transport Law Associate Solicitor Georgina Power explains how a properly drafted partnership agreement can prevent automatic dissolution and safeguard your licence, helping to keep your business compliant and operational.
In the transport industry, holding a valid Operator Licence is non-negotiable. It not only grants you the legal authority to operate goods vehicles either for hire or reward or to transport goods on your own account, but it also demonstrates that you meet stringent standards for financial standing, professional competence, vehicle maintenance and driver management.
For many family-run or farming businesses – and indeed, for partnerships in any sector – the intertwining of ownership interests and operational responsibilities adds a layer of complexity. If the licence holding entity is a partnership, it is vital to ensure that your partnership structure is fit for purpose, particularly when it comes to safeguarding your Operator Licence.
The Partnership Act 1890: an outdated default
By default, if you and your co-owners do not formalise your relationship through a partnership agreement (often called a "partnership deed"), you automatically fall under the governance of the Partnership Act 1890. Despite being over 130 years old, this Act still presides over the rights, duties, and liabilities of partners where no written agreement exists. Most importantly for transport operators, the Act treats the partnership as a single legal entity. Under this framework:
- admission or retirement of a partner dissolves the partnership: the moment a partner joins or leaves, the existing partnership is legally dissolved.
- Operator Licence held by a "non-existent" entity: once dissolved, the legal entity that originally held the Operator Licence ceases to exist. As a result, the licence must be revoked – Traffic Commissioners have no discretion here.
Because there is no "workaround" under the statute, businesses inadvertently place their ability to operate vehicles at direct risk if they do not anticipate these consequences.
The solution: a thoughtfully drafted partnership agreement
The good news is that you can avoid the automatic dissolution trap by putting a bespoke partnership agreement in place. A comprehensive deed can specify that the admission, retirement, or removal of a partner does not automatically dissolve the partnership itself. Instead, the partnership continues in its existing form, even as the membership changes.
Key features of a robust partnership agreement might include:
- succession planning: clear provisions for admitting new partners, whether family members, outside investors, or employees taking equity.
- withdrawal and retirement clauses: safeguards to ensure that when a partner retires (for example, upon reaching a certain age or milestone), the partnership persists without interruption.
- death or incapacity clauses: mechanisms to buy out the estate of a deceased partner or provide for their temporary exit in the event of long-term illness, without triggering dissolution.
- decision-making and voting rights: clear rules around how major decisions (such as expanding into new markets or disposing of assets) will be handled when partners change.
- profit-sharing mechanisms: pre-agreed formulas for distributing profits or losses, tailored to reflect capital contributions, effort, or other factors.
By including these elements, the partnership remains a stable legal entity for regulatory purposes, even though its membership may evolve over time.
Notifying the Office of the Traffic Commissioner
When a partner does join or retire under a properly executed partnership agreement, your obligation is straightforward: you must inform the OTC of any change to the members of the partnership. This must be within 28 days of the event. This notification ensures that the Operator Licence remains in the partnership's name, unbroken, and valid. Failing to notify the OTC within the prescribed timescales can lead to regulatory action being taken against the licence.
Practical steps for transport partnerships
- Review your current partnership agreement (or lack thereof): if you have not formalised your arrangements in writing, you should act immediately.
- Engage specialist legal advice: professional input ensures that the agreement is tailored to your objectives – whether you are in agriculture, construction, distribution, or any other sector that relies on goods vehicles.
- Plan for future growth and succession: even if you are comfortable with your current structure, consider how you will handle new partners, retirements, or unforeseen changes in health.
- Maintain an open dialogue with the OTC: trust is the cornerstone of the Operator's Licensing regime and therefore notifying the OTC of any relevant changes to your business within the timescales required, is the key to maintaining the trust placed in you by the regulator.
For any transport business operating as a partnership, a well-drafted partnership agreement is not merely a corporate formality – it's the linchpin that preserves your Operator Licence. By explicitly allowing partners to join or leave without triggering dissolution, your business avoids the legal void that would force revocation of your licence under the Partnership Act 1890. Instead, you simply notify the Office of the Traffic Commissioner within 28 days of any change, ensuring continuity of operations and compliance with UK transport law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
