What is a partnership agreement?

A partnership agreement is a contract governing a partnership that enables the partners to set rules for the management of the business, so that they can focus their efforts on developing the business and growing revenue and profits. It can be also used to pre-empt problematic situations. It establishes protocols for dealing with such situations ahead of time to mitigate difficulty and expense later on.

Do I need a partnership agreement?

A partnership agreement is always strongly recommended. If you seek legal assistance in relation to your partnership, one of the first questions you will be asked is “do you have a partnership agreement?”

There is no legal requirement for a partnership to have a partnership agreement. However, if you do not have a partnership agreement you may be forced to rely on legislation that is over 130 years old for the management of your business. Unsurprisingly, aspects of this legislation can be outdated and inconvenient. For example, if there is ever any change in the identity of the partners, the original partnership will be dissolved and replaced with a new partnership. Also, the default position under the original partnership legislation is that each partner is entitled to share equally in the capital and profits of the partnership, even if one partner contributes more.

What is the role of a partnership agreement?

A partnership agreement allows the partners to set their own rules for various matters including:

  • the management of the business
  • the responsibilities and duties of the partners
  • the proportions in which assets, capital, profits and losses will be shared between the partners
  • what happens to a partner’s share in the business on their death
  • events that trigger a partner to leave the partnership
  • methods for resolving disputes
  • confidentiality
  • how to dissolve the partnership

Why should I instruct a solicitor to prepare my partnership agreement?

Although partnerships can be easy to set up, the rules governing partnerships can be complex. Partnership agreements are complicated documents and should be tailored to your business and its goals.

A solicitor will be able to advise you on what you should include in your partnership agreement. They may suggest things that you might not have thought of which will help achieve your business goals.

Tax reliefs

A well drafted partnership agreement can also help with your personal tax planning. It may be possible to hold certain assets, such as land, as the property of the partnership for business property relief or agricultural property relief purposes. Tax advice should be sought in relation to such matters.

For expert guidance, contact our Employment team on 01245 228101 or email emersonj@gepp.co.uk.