What is a partnership agreement and why do I need one?

If you are entering into a business partnership, it is important that you each agree on how the business will operate day to day and that these agreed upon terms are formally documented by way of a partnership agreement. 

What is a partnership agreement and why do I need one? 

A partnership agreement is like a rulebook which is agreed between the partners. It governs how the partnership will run and other keys points such as those set out below. So, why might you need one for your partnership?

  • Whilst a partnership agreement is not strictly required by law, if you do not have one in place, your partnership will be governed by legislation, which is not tailored to how you may have intended to run the partnership or indeed split the profits. For example, the statutory position is that all partners are equal and profits must be split accordingly. 
  • When drafted correctly, a partnership agreement can help to avoid conflict and disputes. If a dispute arises, an agreement can set out the form of resolution which should be attempted. 
  • Properly drafted agreements can promote consistency across the partnership and the business as each partner must follow all procedures set out in the agreement. 

What can I include in a partnership agreement? 

A partnership agreement can be as thorough and detailed as you wish. Some areas which you could document in your partnership include (but are not limited to): 

  • How the profits and losses will be distributed between the partners
  • The commencement date and duration of the partnership 
  • A record of the initial capital contributed by each partner 
  • The assignment of day-to-day duties and roles of each partner
  • How and when drawings can be made
  • How a partner can exit a partnership 
  • How a person can enter a partnership 
  • Any decision-making processes (for example, details of a voting system) 
  • Any accounts and banking procedures that the partners wish to implement 
  • When and how often meetings of the partners will take place 
  • Any restrictions on partners (which can, for example, prevent any of the partners from exposing the business to financial risk) 
  • Holiday entitlement of each partner
  • What happens on retirement or death of a partner 
  • Grounds for expulsion of a partner (such as a breach of the partnership agreement or failure to carry out duties) 
  • What happens if a dispute arises and what form of dispute resolution should be attempted in the first instance

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How Moore Barlow can help

We work in a way that gives you the time, space and opportunity, as partners, to collectively consider how you’d like to approach the key areas to be covered by your partnership agreement before we jump into the legal drafting of the document itself.

Moore Barlow has one of the largest corporate law departments in Southern England and has experienced corporate lawyers who can provide expert legal advice and guidance to ensure that partnerships and LLPs and partnership agreements are tailored to meet the specific needs and objectives of your business. 

If you would like more information on partnership agreements, please contact our Corporate law team