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Partnership Agreements

Establishing a formal Partnership Agreement is pivotal to ensuring smooth and successful relationships between business partners of a general partnership.

Partnership Act 1890 versus Partnership Agreements

If you are operating your business as a general partnership, in the absence of a formal Partnership Agreement, your business is governed by the general (and often outdated) provisions contained in the Partnership Act 1890 (the Act). In reality, some of the default provisions under the Act will not often coincide well with the nature and needs of your business. 

For instance, if your business is governed by the Act without a Partnership Agreement, you are legally obliged to contribute (and to share) capital and profits equally between all partners. In addition, where no fixed term for the partnership has been agreed between the partners, any partner may terminate the partnership on giving notice under the Act. 

Consequently, Partnership Agreements are an important way of establishing a set of rules specifically tailored to suit your particular business and override (or vary) the default provisions under the Act where required. Alongside the matters highlighted above, other key areas often covered by Partnership Agreements include:

Details of each partner and their individual responsibilities

  • For example, how much time each partner is required to dedicate to the business.
  • This is especially useful where some partners work full time and others work part time on the business.

How many meetings are to be held and which partners are allowed to attend and to vote

  • The Partnership Agreement may specify how many votes each partner has and which partner will possess the ‘deciding’ vote in the event of a deadlock (where applicable).

Under what circumstances the partnership will terminate

  • In addition to any partner being entitled to bring the partnership to an end by giving notice to the other partners (referred to above), under the Act the partnership will automatically terminate if any of the partners die. 
  • Many partnerships will not want to terminate in the situations stipulated under the Act, therefore, it is important to set out precisely under which circumstances the partnership will terminate in a Partnership Agreement.

Provisions governing the departure of retiring partners and the introduction of new partners

  • For example, how the retiring partner’s share in the business will be redistributed, and how new partners will be appointed.

Grounds for expulsion and disputes

  • The Partnership Agreement can set out those matters which will result in a partner being expelled from the partnership to try and avoid disputes as to whether a partner has been expelled from the partnership lawfully.
  • Examples of expulsion matters include a partner committing serious or repeated breaches of the Partnership Agreement, or failing to pay to the partnership any money owing by them within a specified period of time following demand.   

Family Partnership Agreements

Family members in partnerships together tend to have a laissez-faire attitude when it comes to written formal agreements. This is because they trust their family members and therefore do not see the necessity to put in writing the provisions governing the business and the nature of the partners’ relationships. However, given the above, and the unfortunate truth that family relations can breakdown, Partnership Agreements are important to try and minimise the potential for discord between partners. 

How we can help your business with a Partnership Agreement

Glanvilles can help you either draft or review a Partnership Agreement at any time in the life cycle of your business, whether it be an already-existing partnership or whether you are looking to begin one. We will work closely with you and your partners to ensure that the Partnership Agreement is structured in a manner best fitted to the needs of your specific business and covers all necessary areas.

When you use our commercial law service, we promise:

  • Our staff will be friendly, respectful and attentive.
  • Your concerns will be listened to, your questions answered, and your options explained in plain English.
  • The cost of dealing with your requirements will be made clear to you from the outset.
  • We will keep you regularly updated at all times.

Glanvilles LLP is Lexcel accredited by the Law Society in recognition of the high standards of our practice management and client care. We are independently regulated by the Solicitors Regulation Authority (SRA).

If you would like our assistance, or have any further questions, please do not hesitate to contact the Commercial team at Glanvilles LLP.