A Partnership Agreement is a written agreement between business partners. It should set out clearly each party’s contractual obligations and provide the framework for the day-to-day running of the business. A well-drafted partnership agreement will cover many of the potential areas of dispute between partners and will establish mechanisms for dealing with them should they arise.
If your business is structured as a company limited by shares, you should consider getting a shareholders agreement.
Typically the agreement will include:
The purpose of the agreement is to regulate how the business will operate day to day and help resolve any disputes between partners. A partnership does not have to have a Partnership Agreement but the clarity a well-drafted agreement provides will be helpful. Importantly, creating a Partnership Agreement when everyone is on good terms is more likely to mean a good outcome for the business and all parties if things go wrong later.
A Partnership Agreement should include clear mechanisms for making decisions, including the times when the Partnership faces challenging circumstances and the partners may not all agree on the way forward. This pre-agreed structure can help the partners reach agreement and avoid unnecessary harm to the business.
If there is no Partnership Agreement your relationship as partners in the business will be governed by the Partnership Act 1890. The Act treats all partners as equals and, for example, all partners would equally vote, share the capital and profits of the business and be jointly liable for any debts unless you agree something different in a Partnership Agreement.
There is no one size fits all approach to how a partnership should run and it could seem unfair if you each made different capital contributions, or if one partner alone enters a costly contract that turns out to be a poor business decision, leaving all other partners equally liable.
There is greater potential for disputes and disagreements between partners without a Partnership Agreement. The agreement can contain provisions that pre-empt disagreements and set out appropriate ways for disputes to be addressed.
It can also lead to difficulties if one of the partners wants to leave the business or passes away as this will automatically end the partnership.
It is important to review your Partnership Agreement each time a major change or milestone is achieved to ensure it is still suitable. Changes could include your capital contributions, the assets of the business or a partner joining or exiting.
A Partnership Agreement will have a process in place to change it. Typically, a change to your company’s Partnership Agreement will require all of the partnership to agree to the change in writing.
Our corporate solicitors are experienced with drafting bespoke Partnership Agreements for businesses in a range of sectors. With an understanding of your business, we can provide you with a Partnership Agreement tailored to your needs, which will give you and your partners peace of mind and clarity over how your business operates.
For more information on how we can support you, please contact one of our corporate specialists below.