A deed of partnership is another term for a partnership agreement, the legal document that sets out the terms and conditions of a business partnership.
Putting a formal agreement in place is highly recommended. While a partnership can be created informally without anything in writing, an agreement will ensure that each partner understands their rights and responsibilities. It can reduce the risk of misunderstandings and disagreements and give you a clear roadmap for how difficult issues will be handled in the future.
Summary
- Why Do You Need a Partnership Deed?
- What Happens When a Partner Wants to Leave a Partnership?
- How Can a Partnership Agreement Protect Your Business?
- What Happens If Business Partners Do Not Have a Partnership Agreement?
- Contact Our Partnership Agreement Solicitors
Why Do You Need a Partnership Deed?
Without a partnership deed, a partnership will be governed by the Partnership Act 1890 (the Act). It is often the case that the provisions of the Act are not what partners want to happen.
Examples of the contents of the Act include:
- The partners will share equally in the profits, irrespective of their contributions
- If a partner leaves or dies, then the partnership is at an end and the assets will be shared equally between the remaining partners and the deceased partner’s estate
- A partner cannot be required to leave. The only way to accomplish this is to end the partnership and form a new partnership without the unwanted partner, which can be difficult if you wish to carry on the same business that they were part of
A partnership agreement has far more flexibility than the Act provides and you can have it tailored so that it exactly sets out the agreement between you.
An experienced partnership agreements solicitor will be able to suggest a range of provisions that you might not have considered but that could be helpful in the future.
What Should Be Included
The partnership deed should provide a strong framework for your agreement, clearly setting out how a wide range of issues will be dealt with between you. Key partnership agreement clauses that are commonly used include:
- Who owns the partnership’s assets
- What authority does each partner have and who has the power to make each type of decision
- How profits, losses and liabilities will be shared
- How liability for a decision that leads to a loss be dealt with
- How a partner can leave the partnership
- How a partner can be removed
- Who has the authority to agree to borrowing
- What salaries will be paid and how these will be agreed upon
- Who can call a partnership meeting
- How many partners need to authorise a decision
- Non-compete clauses
- How disputes will be dealt with
What Happens When a Partner Wants to Leave a Partnership?
If a partner wants to leave a partnership and there is no partnership agreement in place, the partnership will be dissolved. They will generally serve a notice of dissolution on the other partners. The business can be ended on dissolution or alternatively, a new partnership can be formed with the remaining partners, if they wish to continue.
When it is decided to end the business, a dissolution agreement can provide a plan setting out how matters will be dealt with, including:
- How assets will be split
- How debts will be paid
- What will happen to any intellectual property and the business name
- Who will be responsible for ending any contracts the partnership had entered into
- An agreement to prepare and approve final accounts
- Closure of bank accounts
If there is a partnership agreement in place, then the partner who wishes to leave should follow the directions it contains for leaving.
How Can a Partnership Agreement Protect Your Business?
A partnership agreement will ensure that each party understands what is expected of them and what rights and responsibilities they have.
It is an opportunity to stop partners from damaging the business if they decide to leave. It can outline how day-to-day tasks will be shared and limit the authority of partners. Major decisions, such as taking out a loan, can require a unanimous decision, and profits and losses can be split unevenly where appropriate.
Talking through all of the options and making difficult decisions upfront can really reduce the risk of a dispute later on. An experienced partnership agreements lawyer will be able to ensure that you have an agreement that accurately reflects what you want to happen in various situations and help you to agree on issues upfront.
What Happens If Business Partners Do Not Have a Partnership Agreement?
If there is no partnership agreement, a range of difficulties could potentially arise, including with respect to the direction the business is taking, not spending enough time working in the partnership, how various roles are shared, division of profits and losses and decision making.
Disputes can be crippling for a business, as well as costly. A partnership agreement will generally require any issues to be dealt with by way of alternative dispute resolution (ADR) in the first instance, which can help to find a prompt solution.
However, if there is no partnership agreement in place, then not only is a dispute more likely, but it may also be harder to persuade those involved to attempt mediation or another form of ADR.
Contact Our Partnership Agreement Solicitors
If you are thinking of setting up a partnership or you are already in a partnership but do not yet have an agreement in place, call us today.If you would like to speak to one of our expert partnership agreement solicitors, email us at info@witansolicitors.co.uk or fill in our contact form and we will talk through your situation with you and discuss how we can help. We have offices in Birmingham, Northampton, London and Wellingborough.
