Do I need a partnership agreement?

In almost all circumstances, the answer is likely to be yes. In the absence of a formal partnership agreement your business will be governed by the provisions of the Partnership Act 1890. It is important to be mindful of the provisions of the act and how they may be at odds with how you want your partnership to operate. For example, the Partnership Act provides that,

  • partners are entitled to equal shares of the partnership’s capital and profits regardless of their capital contribution
  • if any partner dies then the partnership will be automatically dissolved
  • all partners are required to take part in the management of the partnership
  • all parties contribute equally to the losses of the partnership
  • the acts and decisions of all partners are binding on the firm
  • partners can unilaterally end the partnership by giving notice to the other partners
  • there is no authority for partners to expel a partner from a partnership

Now it may be that this matches your particular requirements but in many cases partners are unaware of the importance of the act and the potential it has to impact upon their business.

Formal partnership agreements however can supersede the provisions of the act. Partners can determine the relationship between themselves and how they want the partnership to operate and can agree on processes to deal with issues such as the distribution of profits, liability for losses, dispute resolution, how to deal with outgoing or incoming partners and so on. An agreement provides certainty and can go some distance to avoiding potentially costly dispute between the partners in the future.

If your partnership may benefit from a formal written agreement or you need advice on your existing agreement then please contact our Rob Synnott on or 01736 362362

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