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Why have a Partnership Agreement?

View profile for Karen Edwards
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A partnership without a written agreement is a ‘partnership at will’ which means that relations between partners are governed by the Partnership Act 1890. Unfortunately a ‘partnership at will’ can be an unstable business structure as it can be dissolved at any time simply by notice of one or more of the partners.

The scope of the Act is also very limited and given its age, cannot be expected to cater for modern business practices. To mention a few examples:

  • the Act treats all partners equally in the sharing of capital, assets, profits and workload, regardless of how much capital, effort and skill each bring to the business.
  • Decisions are made by a majority and only certain issues require unanimous consent (a change in business or the introduction or expulsion of a new partner) therefore some partners can be out-voted on important issues.
  • Partners are jointly and severally liable for the liabilities incurred by the business, so where one partner breaches a contract, all partners are liable and any one partner alone could be pursued individually.
  • The death or bankruptcy of a partner likewise automatically triggers dissolution.

A partnership agreement can clearly set out the common vision for the business, including

  • Provisions relating to the term of the partnership,
  • The financial input required of each partner
  • How income profits and losses will be shared
  • The salary and drawings of partners
  • Ownership of partnership assets (taking into account cash, loans or investments)
  • The decision-making process and management procedures such as what should happen if a partner leaves or dies, or a new partner is admitted.

Commercial Solicitor, Karen Edwards, drafts Partnership Agreements for company Directors in Bournemouth, Poole, Christchurch and beyond. She says “Partnership disputes can be highly disruptive and a properly drafted partnership agreement will provide a written structure which will help clarify the position and lessen any adverse impact. Therefore, if you are running a partnership, a partnership agreement could be a very wise investment.”

Frettens offer an initial meeting to discuss the requirements of the partnership, or a review of any existing partnership agreement, free of charge.

For a free initial meeting please call 01202 499255 and Karen or a member of her team will be happy to discuss any questions you may have.