Family partnership agreement
Ideal for family businesses or groups of friends working together, this partnership agreement provides a good framework for setting out how the business will be run. It is slightly less formal than our standard partnership agreements, but still comprehensive enough to cover the provisions that matter.
About this family partnership agreement
This partnership agreement has been drawn for people working in business together who don't necessarily want a lengthy document but who do want to cover all the bases to make sure that they can control the business how they like. It is ideal for groups of friends working together or a family business where there is already a high level of trust and co-operation between the business partners.
Why having a written partnership agreement is important
A partnership agreement regulates how the business operates. Many families or groups of friends enter into business with each other without a formal agreement because they feel that there is no need to formalise the relationship when there is a high level of trust between the partners.
In a family situation or when working with friends, the reason to use a partnership agreement is to contract out of the Partnership Act 1890.
This law automatically applies to situations where two or more people "carry on a business in common with a view of making a profit", whether in a formal partnership or not. However, being over 120 years old, it doesn't always reflect how modern businesses operate. You have a choice of either following the rules of the PA 1890, or overriding them with your own but any rule in the Act that you don't override in a written partnership agreement remains valid.
Partnership agreements also protect partners from unintended consequences. For example, if a partner is made bankrupt in his personal life, creditors may be able to pursue his share of the partnership assets and force a fire sale of thebusiness in order to recover their losses. A partnership agreement, however, could set out what happens in such situations and protect the investment of the other partners.
When to use this document
This agreement could be used in any of the following situations:
- A new venture between friends
- Admittance of a partner into an existing business of a sole trader (for example, a daughter joining the father's business)
- Existing family partnerships wishing to record their arrangement
- Existing partnerships wanting to change the balance of control and ownership of the business
The partnership might be:
- Partners working together on the same business in a similar way to the way they might work together in a company
- Partners working individually, on different business, but sharing common services (such as office space or employees), for example solicitors
- Family members or friends working together
Any (potential) partner could start the drafting process. It is not necessarily the responsibility or right of a large share owner or founder partner. The arrangements of the business are as applicable to partners with smaller stakes as those with larger ones.
Agreement features and contents
- Suitable for businesses in any industry
- Best suited where there will be a small number of partners who require a less formal agreement
- Provides practical alternatives to the default arrangements set out by the Partnership Act 1890, including arrangements for the admission and expulsion of partners, for when disagreement and dispute arises, and for the dissolution of the business
- Provides additional terms covering how a modern day business operates that are excluded from the 1890 Act
- A comprehensive document, drawn in long form (unlike most partnership agreements found on the Internet), giving a full menu of items to include or exclude depending on your requirements
The agreement contains 29 paragraphs that cover:
- Identification of the partnership as a business
- How partners share profits and losses
- Partnership property
- How partners who contribute capital to the business are to be compensated
- Allocation of profits and losses and how profits are withdrawn
- Loans made by partners to the business
- Banking arrangements
- Records and accounts
- Meetings and voting: how decisions are made, and which ones require unanimous agreement
- Holidays and absence
- Reference to other business policies (such as health and safety)
- Restrictions on what partners may do in the course of partnership
- The process for removing a partner and examples of behaviour that would result in expulsion
- How the business will be terminated and what partners agree to do on and after termination
- Dispute resolution
- Other legal paragraphs to protect your interests
This document is drawn and maintained by qualified lawyers at Net Lawman. It is real law in plain English.
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