A partnership agreement sets out the details of the partnership, its partners, their profit shares, capital contributions and, most crucially, the rules for leaving the partnership. Not to have a partnership agreement when in business as partners is very risky.
A partnership can be set up by any two or more persons agreeing to go into business together. The partners do not have limited liability, and each partner is potentially liable for all the debts of the business. There is no legal requirement to register the business, except for tax and VAT purposes, or to draw up a formal partnership agreement. Partnerships are governed by the Partnership Act 1890.
There are, however, some very good reasons why the partners should have a partnership agreement. Without such an agreement, there is no proper record of some very major questions, such as who owns the business, who is entitled to the profits and who is liable for the losses, as well as many less basic, but still important, matters. The lack of an agreement is most important if the partners should fall out, or if one of them wants to leave or should die. Without a partnership agreement, very real disputes can arise, which can only be resolved with expensive litigation. While the business may have been very small when it was started, if it has become successful and so is valuable, there is increased scope for disputes.
Our partnership agreement is a detailed legal contract that covers all the usual arrangements for a trading partnership. So far as possible, it is in plain English and comes with a built in system for keeping it up to date.
Typical provisions to protect all the partners' interests
A good partnership agreement will record important information about the partners and their contributions to the partnership, how they share profits and losses, rules for taking money out of the business, an important list of things partners agree that they will and will not do and, crucially, what happens if a partner dies or wants to leave the business.
Leaving the partnership
One of the most important areas is the rules that apply when a partner dies or wants to leave the partnership. Death or resignation of any partner will dissolve the partnership as between all the partners (even if there are three or more partners and one of them leaves). This is very unsatisfactory situation which can only be avoided by means of an agreement between the partners. Typically, a partnership agreement provides for a partner who wants to leave to give a period of notice, that if one partner leaves (or dies) the others (even if there is only one) can continue to run the business and to buy the share of the outgoing partner, with a mechanism for deciding the value of the share and, in some cases, for payment by instalments. Many partnership agreements include powers to expel a partner for serious misconduct, etc.
The Company Law Solutions service covers partnership agreements that are suitable for small trading businesses. We strive to make our agreements straightforward and easy for all parties to understand, within the limits of legal accuracy. We start by taking details about the firm using our partnership agreement instruction sheet. We ask what issues are important to the various parties. We advise on typical issues and solutions.
On the basis of these initial instructions, we produce a draft agreement, email it to the parties, seek their comments and make amendments as required. Once the final draft is settled, we produce printed copies for all the parties (if required) and advise as to the procedure for signing the agreement so that each party keeps a copy signed by all the other parties.
We also provide partnership agreements for professional firms, such as solicitors and accountants, which tend to be a little more complex (because of the requirements of the relevant professional body, and because there tend to be more detailed provisions for the admission of new partners and for those retiring.
Built in flexibility
Because things change from time to time, your partnership agreement will provide a simple procedure so that it can be kept up to date. This allows details falling within the general framework of the agreement to be decided when necessary. It also provides a means for provisions in the agreement to be changed when the need arises, but only if agreed by all the partners. Each partner's copy of the agreement contains pages for recording and signing such decisions, a useful long term feature. We also provide a checklist of matters the partners should decide both when the agreement is first signed and at regular intervals.
The result is a practical framework for your partnership, providing clarity and certainty on the essential arrangements between the partners.
Cost can vary according to the complexity of the agreement. Our standard service, which covers most agreements, is supplied at our benchmark price. This is the total charge in most cases. If complex additional terms have to be drafted, there may be additional cost, but we would always advise as to the actual cost before proceeding. Agreements for professional practices usually include more complex and individual provisions, so a higher benchmark price is listed.