A comprehensive partnership agreement suitable for businesses in any industry and with any number of partners. Written as a long form document it allows you to amend the default provisions of the Partnership Act 1890 and also provides additional terms covering how a modern day business operates.
About this partnership agreement
A partnership agreement sets out how the business is controlled, how profits are shared, how assets (including intellectual property like trade names) are divided, and importantly, who is liable for business debts.
This agreement does so comprehensively, covering all the common situations that provide problems for partners working together.
Why having a partnership agreement is crucial to protecting your business interests
Unless otherwise stated in a partnership agreement, all partnerships are governed by the Partnership Act 1890. This includes situations where two or more people are “carrying on a business in common with a view of making a profit”. The consequence of this is that if you are working with someone else, you may be in a partnership controlled by the Act, even if you don’t intend to be in one.
Generally, the default provisions laid down by the Act are unlikely to be in at least one of the partners’ interests so most partners use a partnership agreement to formalise an alternative to the default. Without an agreement, you leave your interest in your business at great risk to being devalued by the actions of your partner.
The most important areas to consider are:
- Control of business decisions
- Admittance and expulsion of partners
- Valuation of intangible assets (such as trade names and customer goodwill)
- Liability for partnership debts
There are many situations where something could go wrong and we provide a longer article on this site covering these. As an example, by default, all partners have equal responsibility and liability for partnership debts. Unless your partnership agreement sets out otherwise, one of your partners could take on a contract that turns bad and leaves you personally financially responsible for repayment. Similarly, unless otherwise agreed beforehand, a partner who becomes bankrupt in his personal life may be forced to surrender his share of the partnership to his creditors who may be able to force a fire sale of your business to recover their losses. To make matters worse, they might not value your business as highly as you and force you to break up at a lower price than the business is worth to you.
Only by thoroughly setting out how you will operate your business together in a partnership agreement, can you be sure of reducing the risk to your investment.
When to use this partnership agreement
This agreement could be used in any of the following situations:
- A new venture with one or more other people
- Admittance of a partner into an existing business of a sole trader
- Existing partnerships wishing to formalise their partnership agreement
- 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 working together in an unincorporated family firm
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.
Partnership agreement features
- Suitable for businesses in any industry, including trades or professional services firms
- Best suited where there will be between 2 and 10 partners, although it could be used for larger partnerships
- 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
- Partnership shares;
- Partnership property;
- Profits and losses;
- Meetings and voting;
- Holidays and absence;
- Cars and other policies;
- Accounts and records;
- Restrictions to protect other partners;
- Comprehensive termination provisions to protect ongoing partners;
- Other partnership terms.
This document is drawn and maintained by qualified lawyers at Net Lawman. It is real law in plain English.
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