Without a partnership agreement in place, partnerships are regulated by the Partnership Act 1890 which is over 120 years old and whilst still in force, it was not envisaged to be applicable to partnerships today.
Key terms in a partnership agreement
A Partnership Agreement can vary depending on the nature of the business involved. It can cover the following areas:
(a) The type of partnership
(b) What the business of the partnership will be? Does there need to be a majority of partners’ agreement to change the business of the partnership?
(c) What will be the business name? Can you use that name – there are a number of restrictions preventing certain names being used?
(d) Where will the business be carried on from? Does there need to be a majority of partners’ agreement to move to new premises?
(e) Is the partnership to last indefinitely or it is for a fixed term? Who decides when the partnership should terminate and be dissolved?
(f) If a partner dies or is declared bankrupt, will the partnership continue? Note that for it to be a partnership there must be two partners.
(g) How much capital is each partner contributing to the business? How are profits and losses to be shared between partners?
(h) What does the business own – does it own assets or property?
(i) How is the goodwill of the partnership to be dealt with?
(j) When will partners be able to make drawings and does it need to be on agreement?
(k) Who will be the partnership’s accountants?
(l) Who will be the partnership’s bank and who will be on the bank mandate as signatories?
(m) To what extent should partners contribute their time to the business?
(n) Is there to be a Managing Partner?
(o) On what basis are decisions to be made – by a 50% plus one majority or by a higher level such as 75%?
(p) How often will the partners meet?
(q) What happens in one partner wants to retire?
(r) What happens in a new partner wants to join?
(s) What happens if there is a dispute between the partners – can the partners consider arbitration?
(t) When can the partnership be dissolved?
(u) When can a partner take a holiday – does he need to consent of the other partners?
This list could continue and there are many areas where without a Partnership Agreement, partners would be left with no alternative but to rely on 120 year old legislation.
Please call 08452252635 to discuss with our business solicitors to discuss putting in place a Partnership Agreement tailored to your business.