Why do you need a partnership agreement? | Corporate Law

Описание: For many entrepreneurs, particularly farmers, partnership and a partnership agreement are really important topics to understand because:

you may already have a partnership – consciously or not; or
you may want to create one;
you may be advised to create one, especially by tax advisers where family members can be brought into a partnership to mitigate inheritance tax.
What is a partnership?
The essence of the law is that a partnership exists wherever there are two or more “persons carrying on a business in common with a view of profit’ (s1(1) of the 1890 Partnership Act).

There are plenty of ways in which you may have already a partnership, probably with members of your family or neighbours or suppliers or customers.

So do you need a partnership agreement?

Well, yes – absolutely, you must have one. You may already have a partnership. It may be working really well. But our advice, based on years of experience is that:

one thing humans are brilliant at is falling out with each other; and
the other truth is that we all have bad memories.
So if you do not have a good, clear written agreement, you are at real risk of someone deciding someday that things are not as they had remembered and they are prepared to have an argument about it.

The second bit of law for you to understand is that if there is no agreement as to the terms of the partnership, the law imposes an agreement on you and your partners which is particularly unhelpful. The law imposes:

equal sharing of profits and losses;
equal capital, regardless of contributions;
every partner is allowed actively participate in the management of the business; and
any one partner can dissolve the partnership at any time by any partner giving notice to the others.
And it gets worse, all partners are jointly liable for the debts and wrongful acts of the other partners and all outgoing partners may continue to be liable for partnership debts after leaving.

Hence, if you have an existing business or income stream which is likely to be a partnership and there is no agreement, you must put one in place as soon as you sensibly can.

And of course, that advice is even more important:

where you are dealing with significant assets;
where you have the interests of family members to consider; and
where there is a risk of a falling out (and who else do we fall out with most but our family, neighbours, customers and suppliers).
You also need an agreement particularly, as is likely where you have family members coming into the business:

where there is profit to be allocated unequally between various parties; and
where capital has been put in different proportions.
You can see pretty quickly too that there is also a huge benefit to recording very clearly:

what assets the partnership has (or does not have); and
who is entitled to how much of the profit; and
who owns the capital in the partnership

How Moore Barlow can help

Our Partnerships and LLPs solicitors can provide expert legal advice and guidance to help you navigate the complexities of partnerships and LLPs. We can assist with everything from formation and structuring to dissolution and dispute resolution. Our team has extensive experience working with a wide range of businesses, from small startups to large multinational corporations. Let us help you protect your interests and achieve your goals.