Do you need a Partnership Agreement ?

What do starting a business and getting married have in common? Well they are both easy to start and can be difficult, messy and expensive to end.

If two or more people start to trade with the intention of making a profit, then they are likely to have created a partnership.  But there are pitfalls waiting to trap the unwary and unless you have thought through the roles and responsibilities, the “whys and wherefores” of a partnership can lead to an unhappy marriage.

For example, if a partnership operates without a written agreement any partner can serve notice on the others at any time to “dissolve” the partnership. The partners are then entitled to their share of the assets, which can mean the end of the business and your livelihood.

Without a written agreement setting out how management decisions are to be made, one partner may succeed in entering into agreements or obligations that bind the remaining partners as well – on a joint and several basis.  This means that even though you may not have been consulted you could be sued individually for the whole of a debt that may not have been any of your making.

If you are in a partnership and things are not going well, don’t think that you can retire and walk away with clean hands. A former partner is liable for all debts of a partnership that arise in the period he or she was a partner.

These and other risks can be planned for and mitigated against with a written agreement, which should be created as soon as you decide to go ahead with a partnership. The agreement will deal with how partners can retire and their ongoing liabilities and cover issues such as the introduction of new partners, leave, and ‘who owns what’ in terms of assets and entitlements to profits.

If you are invited to join a partnership and there is no partnership agreement in place then tread very carefully and ask for an agreement to be drawn up.

Conversely, if you are in a thriving partnership (and many are) and you want to attract new partners with additional skills, the first thing they are likely to ask for is sight of your partnership agreement.  Do you have one?

For further information contact Ed Bailey .

The information given in this article is of a general nature only and should not be considered as advice applicable to any particular situation for which specific request should be made to us.

"We have dealt with larger firms than Barr Ellison, but none have delivered the same level of consistent, high quality service."
Trevor Bailey, Head of Retail, Stable Trading Limited

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