When entering into business with one or more partners, it is essential to put a robust partnership agreement in place to set out the terms of your relationship and avoid expensive disputes.
The effect of the perfect partnership agreement is to clearly set out each partner’s rights and obligations, reducing the risk of conflict and the impact of any disputes on the operation of your business.
If you do not put a partnership agreement in place, your business will be regulated by the law – for example, most partnerships will be governed by the Partnership Act 1890 and partners in LLPs will be subject to the default provisions under the Limited Liability Partnership Act 2000.
What is a partnership agreement?
A partnership agreement is a written agreement between 2 or more people who come together as partners to run a business. It sets out the terms and conditions of the partners’ relationships with each other and the business, including:
- Each partner’s initial financial contributions and percentage of each partner’s ownership
- The length of the partnership and whether the business should be dissolved at the end of the term
- Voting powers and other decision-making procedures
- How to resolve disputes
- How to handle the withdrawal or death of a partner
- How to remove a partner
Why enter into a partnership agreement?
Your partnership agreement should cover every possible situation that might arise in the course of your partnership that could cause disagreement or confusion.
If you do not make a partnership agreement, your professional relationship will be regulated by partnership law.
Most partnerships will be governed by the Partnership Act 1890, an old piece of legislation that does not necessarily account for the realities of running a modern business. Its provisions include:
- Profits – if there is no other agreement, the Act provides that profits and losses should be divided equally between the partners. This can cause an issue where the partners do not have equal levels of responsibility
- Dissolution – a partner can dissolve the partnership with immediate effect by giving notice to the other partners
- Death – if any partner dies, the partnership must be dissolved
- Expulsion – under the Act, no partner can be expelled, even if they seriously breach their duties or are convicted of a criminal offence
Limited liability partnerships (LLPs) are governed by the Limited Liability Partnership Act 2000. If you do not put a partnership agreement (more commonly referred to a members’ agreement where LLPs are concerned) in place, provisions such as the following will apply:
- Profits – all partners will equally share in the capital and profits of the business
- Members – the unanimous consent of every partner is required to add another partner to the business
- Decision-making – decisions on ordinary business should be made following a majority vote of all partners. Changes to the structure or nature of the business require the consent of all members
Other general benefits of creating a partnership agreement include:
- Minimising future costs – disputes between partners can severely disrupt the operation of a business. You can reduce the impact of any disputes by clearly setting out your agreement in writing together with terms on how to resolve disputes and whether to utilise any alternative dispute resolution methods such as mediation
- Control – you have full control over how your business should be run, how important decisions should be made, and how members will join and leave the partnership
- Liability – regulate the types of actions members can take, contracts they can enter into, and protect partners from other partners’ bad business decisions
Who choose Lewis Denley’s partnership agreement solicitors?
At Lewis Denley, we specialise in providing bespoke legal services to individuals and businesses across Horsham and the wider West Sussex area.
We combine expert levels of legal knowledge with a friendly, personal service, and a high level of business acumen rarely found at other law firms. We will truly get to know you and your commercial goals so we can tailor the perfect partnership agreement for you.
Every member of our team is a specialist and passionate about what they do. We heavily invest in our talent to ensure we are consistently offering top quality services to every client, regardless of the complexity of their case.