Why do I need a Partnership Agreement?

By DRN Solicitors

02 Nov 2021

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When working alongside a business partner, great care must be taken to ensure every aspect of your business arrangement is agreed upon and verified by all parties involved. 

Having a detailed partnership agreement in place is the only way to protect both you and the business in the event of any complications. 

When unforeseen circumstances or complications arise, such as internal disputes, an unexpected death of one of the partners, or split opinions over the interests of the business, your partnership agreement will provide all parties with security, and will be valuable in taking the first steps for any matters to be resolved. 

Here are our top four reasons for putting a partnership agreement in place… 

Taking control 

Whilst having a partnership agreement in place for your business may not be a legal requirement, it’s certainly in your best interests to do so. Without a partnership agreement, your business partnership will be governed by the Partnership Act 1890. 

Written into law over 130 years ago, the Act is, unfortunately, now quite outdated, and lacks the scope to cover the various formats modern business partnerships can take. 

The Act essentially sees all partners as equals, which may not ultimately reflect the true nature of your arrangement. This can lead to lengthy disputes in the event of a disagreement, and undesirable results in the long-term. 

With a partnership agreement in place, the contract will override the provisions of the Partnership Act 1890, enabling you to take greater control in the management of your business and partnership arrangement.  

Future-proofing 

Having a partnership agreement in place will provide protection in the event of a dispute, or any unforeseen circumstances or complication, helping to reduce costs should something go wrong. 

Should a dispute arise, the terms that have been agreed to will already be outlined in the agreement, helping you to reach a resolution in a timely manner. 

Protecting your finances 

Without a partnership agreement, each partner in the business owns an equal share of the assets, and this may not properly reflect the nature/extent of the contributions made by each partner. 

For example, if one partner has contributed more to the business in terms of time and money, it may seem unfair for the other partner(s) to be entitled to financial assets of equal weighting. 

Your partnership agreement will enable you to delineate varying degrees of profit and loss, allowing you to distribute the assets in accordance with the shares held by each partner and the contributions they’ve made to the business. 

Clarifying liability 

In the event of a joint partnership, it is essential to have a comprehensive partnership agreement in place. 

Without an agreement in place, should a business partner make an unfortunate business decision which leads to a loss, debt or bankruptcy, all of the partners involved in the business will be liable, even if they have not been directly involved in the decision-making process. 

Your partnership agreement can be drafted to outline clear terms for what should happen in such circumstances, preventing a situation such as this from arising. 

Fixed-fee legal services for your business 

At DRN, we are committed to building respectful and honest working relationships with all of our clients, enabling us to provide the very best service and appropriate legal advice and support as suited to your needs. 

Our Corporate Law services are offered as part of a fixed-fee monthly retainer package, providing you with unlimited, on-demand legal advice and support that you can trust. 

Get in touch to find out more about our fixed fee packages. 

Construct your partnership agreement today!

As experienced commercial lawyers, the team here at DRN has supported and advised hundreds of businesses and organisations, both large and small, on new partnership arrangements.  

Contact our offices today to take the first steps in drafting your new partnership agreement.  

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