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What is a Partnership Agreement?

A Partnership Agreement is a written agreement between partners in a business.

A well-written Partnership Agreement will;

  1. Lay out each partners contractual responsibilities
  2. Provide a framework for the day-to-day operations
  3. Detail the relationship between each partner
  4. Cover any areas of potential dispute between partners, and
  5. Provide mechanisms for dealing with disputes if they arise

 

Why Partnership Agreements Are important

Many businesses, family run businesses in particular, don’t have Partnership Agreements in place. This can lead to difficulties which cost a lot of time and money to fix.

Without a Partnership Agreement, your business is governed by the default provisions of the Partnership Act 1890. The provisions of the act could make it difficult to deal with disputes.

For example, under the Partnership Act;

  • It’s not possible to expel a partner from your partnership. The only option you have is to end the partnership altogether.
  • All partners are equally liable for debts created by one partner acting on behalf of the business.
  • All partners are equally liable for wrongful acts of another partner acting on behalf of the business.
  • Leaving partners could still be liable for debts or obligations, even once they have left the business.
  • All partners are equally entitled to the capital and profits of the business.
  • All partners equally contribute to the losses of the business
  • Any partner can end the partnership by giving notice at any time.
  • The partnership ends if any other partner dies.

For many businesses, these provisions aren’t suitable.

For example, if;

  • One or more partners should have more authority, depending on experience and/or capital contributions
  • You deem it to be unfair to make all partners liable for one partner’s poor business decision
  • You want the ability to expel partners that aren’t good for the business
  • You want to continue the business if one partner dies

It’s imperative to have a well drafted partnership agreement in place.

 

What Should a Partnership Agreement Include?

Partnership Agreements vary depending on the business and its objectives. Still each Partnership Agreement should at least cover;

  • How much capital each partner will contribute the business and their percentage of ownership.
  • The partners will distribute profits and losses.
  • The responsibilities and rights of each partner.
  • How partners will resolve disputes.
  • When and how a new person could join the partnership.
  • How to deal with partnership exits, both voluntary and involuntary.

 

Do I Still Need a Partnership Agreement Even if My Partners Are Family Members?

Many family run businesses don’t consider it necessary to have a Partnership Agreement.

In fact, Partnership Agreements are crucial in family businesses.

No family wants to suffer friction between family members caused by disagreements at work. A Partnership Agreement can reduce the chances of work conflicts spilling into family life.

 

Can You Change An Existing Partnership Agreement?

Yes.

In fact, it’s important to review your agreement every year or when your business reaches a new milestone.

For example;

  1. A new partner might enter the business,
  2. You might need to change capital contributes
  3. A partner has exited or died

In most cases, to change a Partnership Agreement, all partners must agree to it in writing.

Why Choose Rotheras?

Our experienced corporate solicitors have drafted Partnership Agreements in a wide range of sectors.

Once we get an understanding of your business, we can create a Partnership Agreement that provides peace of mind to you and your partners.

 

Contact our Commercial Agreements Team

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Contact our Commercial Agreements Team
Commercial Agreements & Contracts Team
Billy Shaw

Billy Shaw

b.shaw@rotheras.co.uk

Billy advises businesses on a range of commercial and corporate issues and is happy to assist you with buying or selling businesses, corporate mergers and shareholder agreements.

Lauren Kilbride

l.kilbride@rotheras.co.uk

Lauren Kilbride is a Trainee Solicitor within Rotheras’ Corporate & Commercial department and is based at the firm’s Lace Market office.

Sandeesh Samra

s.samra@rotheras.co.uk

Sandeesh Samra is a Senior Paralegal in our Corporate and Commercial team and is based at our Lace Market office in the heart of Nottingham city centre.

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