A Partnership Agreement is a document setting out an agreement between partners who run a joint business. It is created to outline clearly each party’s legal obligations and anticipates common scenarios that may arise in the day-to-day running of your business.
If you are in a partnership or limited liability partnership a partnership agreement should be drafted. Agreeing the rights and responsibilities of the Partnership and the management of the business leaves everyone knowing exactly where they stand so that you can focus on running your business.
If your business structure is a company limited by shares, you should consider getting a shareholders agreement.
Typically the agreement will include:
Our corporate and commercial solicitors are experienced with drafting bespoke Partnership Agreements for businesses in a range of sectors.
The purpose of the agreement is to regulate how the business will operate day to day and resolve any disputes between partners. Whilst it is not mandatory, this clarity can 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.
A Partnership Agreement can be used as a rulebook to guide decisions in a fair and reasonable way when the Partnership faces challenging circumstances or difficult decisions. This will often prevent friction and possible breakdown of the relationship which may threaten the success and longevity of the company.
Disputes that can be time consuming and costly can often be prevented if a carefully considered agreement is put in place from the outset. A Partnership Agreement will address how to deal with possible challenges that may affect your business in the future and can highlight areas where your expectations are not aligned with those of your business partners.
If there is no Partnership Agreement your business will be governed by the Partnership Act 1890. The Act treats all partners as equals and, for example, all partners would equally share the capital and profits of the business and be jointly liable for any debts.
There is not a one size fits all approach to how a partnership should run and this 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.
Without a Partnership Agreement there is greater potential for disputes and disagreements between partners. 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.
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. Our Corporate & Commercial Team have extensive experience in drafting and advising on a wide range of agreements. We work with businesses of all sizes across a range of sectors.
For more information on how we can support you, please contact one of our corporate and commercial specialists below.