Partnership Agreements

Venturing into a business with a partner is a busy and exciting time but it is important that the necessary legal documentation is in place to protect both parties should the relationship break down or the business runs into financial difficulty.

A partnership agreement will ensure that your businesses legal structure is in place from the start. A partnership agreement in the UK is a voluntary contract forged between two or more parties, which enables them to put their money, labour and skill-set into a business.

The partnership agreement then dictates whether the losses or profits will be shared equally between the participants. Partnerships are governed in the UK by the Partnership Act 1890.

Points To Consider

• Assets

Will business assets be divided equally? If not how will they be divided?

Business premises - will they be the joint property of all partners or the sole property of one?

• Capital

How much initial capital is being provided by each partner? Partners should agree on whether they'll hold equal shares in the partnership or whether their share will reflect the proportions in which they've contributed capital.

If future capital is required how will this be arranged?

• Profits And Losses

Will the profits and losses of a partnership be split between the partners after agreeing the annual accounts.

• Duration

Is your partnership agreed for the lifetime of all involved or will it be a fixed term?

Will the duration of the business be dictated by bankruptcy, expulsion of a partner or death?

• Confidentiality

Should the partnership dissolve the best interests of the business must be protected. A partnership agreement will state that all company information remains confidential. This states that the partners must not release information or work with the businesses competitors and is essential, should one partner leave.

Avoid Future Problems

A dispute resolution clause is necessary in any partnership agreement to avoid disputes that result in lengthy and expensive litigation. It is important to establish clear roles and responsibilities, establishing who has granted authority in each area of the partnership.

Your partnership agreement is a positive step forward for any new business venture and is necessary long term to protect the interests of both the business and the partners involved.

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