| If you set up in business with one or more other | | | | and also the terms on which disputes are |
| people but do not wish to set up a limited | | | | resolved and the partnership can be terminated. |
| company, a partnership arrangement will be | | | | Carefully drafted, it will ensure that you have a |
| deemed to exist at law without the need for a | | | | common vision for the business with mutually |
| formal contract. However, whilst a written | | | | agreed goals. Critically, it will help avoid costly |
| partnership agreement is not required to form a | | | | misunderstandings and conflict. |
| partnership, if you wish to avoid uncertainty and | | | | Key areas to cover in your partnership |
| the automatic application of potentially unsuitable | | | | agreement include:a) ownership interests, taking |
| statutory law, a formal agreement is a wise | | | | into account any cash, assets, loans or |
| investment. | | | | investments made by individual partnersb} salaries |
| What happens if we donít sign a Partnership | | | | and compensation: how will profits or losses be |
| Agreement? | | | | allocated?c} how the partnership will be |
| In the absence of a written agreement, the | | | | managedd) each partnerís specific responsibilities |
| provisions of the 1890 Partnership Act will apply. | | | | within the business, and what level of |
| In essence, these state that all the partners are | | | | performance is expected from theme) whether |
| equal and share profits, losses, start-up and | | | | partners expected to make a full-time |
| running costs as well as the workload equally. | | | | commitment to the venture, or are permitted |
| Whilst the provisions are intended to provide an | | | | involvement in other business activitiesf) what |
| equitable framework for running your business, in | | | | processes should be followed if one partner wants |
| reality, there are significant implications. For | | | | to leave the partnership or a new partner is |
| example; | | | | admittedg) whether partners will be allowed to sell |
| - all partners will be entitled to share the profits | | | | their interests in the business to outsiders and, if |
| equally regardless of how much capital, effort or | | | | so, how will their share be valuedh) on what |
| skill they bring into the business | | | | grounds a partner can be expelled from the |
| - any partner can bring the partnership to an end | | | | partnership (e.g. misconduct, non-performance of |
| just by giving notice to all the other partners and | | | | duties) |
| the partnership will automatically dissolve if a | | | | How do I put a Partnership Agreement in place? |
| partner dies | | | | While there are many internet sites offering |
| - all partners will be jointly and severally liable for | | | | seemingly cheap pro forma partnership |
| the liabilities incurred by the company. This means | | | | agreements, this can be a false economy for |
| that if one partner takes on a commitment and | | | | several reasons: |
| fails to deliver on it, you will be equally liable to | | | | 1) there are three different kinds of partnership: |
| remedy the situation. And if a debt cannot be | | | | general partnerships, limited liability partnerships |
| paid, then the creditor may pursue each of you | | | | and limited partnerships ñ you need to be sure |
| individually, meaning that one of you may be | | | | that you set up the appropriate vehicle for your |
| forced into the position of paying the whole debt | | | | needs; |
| by yourself | | | | 2) no two partnerships will be alike in terms of |
| - should a partner get into financial difficulties then | | | | specific requirements; |
| his or her creditors can take assets from the | | | | 3. you are unlikely to reach amicable consensus on |
| partnership to settle them | | | | an agreement without involving an impartial third |
| - all partners will be considered "agents" of the | | | | party advisor; |
| business and so can act on behalf of the other | | | | 4) without using a solicitor, you canít be sure |
| partners. This means an individual may enter into | | | | that the agreement complies with partnership |
| contractual and financial arrangements which are | | | | laws. |
| not good for the business, but these will be | | | | A better way to save money is to do some |
| binding | | | | preparation before instructing your solicitor: get |
| - all partners have an equal say in the business, | | | | together with your partners and compile a list of |
| which means that it can take time to reach | | | | provisions that you wish to include in your |
| decisions. Unresolved disputes may result in the | | | | partnership agreement. Your solicitor will then |
| break down of the business. | | | | have a good starting point from which to clarify |
| What benefits will a Partnership Agreement offer? | | | | your requirements and draft a suitable agreement. |
| A partnership agreement will provide a written | | | | However, since one lawyer cannot represent the |
| structure for your business clearly setting out | | | | interests of all partners, each partner will need to |
| each partner's responsibilities, rights, profit/liability | | | | instruct their own solicitor to review the final |
| sharing, rules relating to business entry and exit, | | | | document on their behalf. |