Partnership Agreements
It is a truism that every divorce starts with a wedding – but equally every business dispute starts with a partnership of some sort.
As with a wedding, when starting a business it is easy to assume that you will always be able to agree with your colleagues; unfortunately the reality is often different.
Partners can run the business in almost any way they wish but it is important to have a written agreement to fall back on if necessary to provide a route map out of a dispute. The alternative can become drawn out and expensive. If you do not, the provisions of the Partnership Act 1890 will automatically apply and they may not give the outcome you would choose.
Partnership Agreements can deal with a wide range of matters:
- Duration – whether the partnership will exist for a fixed term, for a particular purpose or for an indefinite period until a partner gives a specific notice
- Capital – how much cash or asset each partner will initially contribute to the partnership and the mechanism for further contributions.
- Partnership property – Unless otherwise agreed, all property used by the partnership for the purpose of the business will be partnership property. If property will be used by the partnership but will not be partnership property, the Partnership Agreement can be used to identify it and state the terms on which the partnership can use it.
- Profits and losses – Unless the partners agree otherwise, all partners are entitled to share the profits of the business equally, and must contribute equally towards any losses. Partnership Agreements can specify an alternative division.
- Drawings – how much and when drawings may be taken.
- Incoming partner – the partners can agree that the addition of a new partner must be agreed by the majority of the existing partners or unanimously.
- Retirement, death and expulsion – the period of notice to be given by a partner wishing to leave, and the circumstances in which the other partners can force one to leave. It can also specify the procedure for valuing the share of the outgoing or deceased partner and arrangements for payment.
- Restrictions – Partnership Agreements can impose restrictions such as preventing partners from entering into contracts on behalf of the partnership above a certain value, or hiring and firing without the authority of the other partners.
- Dissolution and winding up – Unless the partners agree otherwise a partnership will be dissolved when anyone leaves, dies or gives notice. Often just one partner wants to leave and the others wish to carry on. The Partnership Agreement can clarify this. Alternatively, it can specify a manner of dissolution other than under the strict terms of the Act eg whichever partner prepared to pay most being able to buy the other out.
- Dispute resolution – a method for dealing with the situation, short of dissolution of the partnership, if the partners cannot agree on a particular matter eg a specific mediation, or decision by an specified 3rd party.
If you’re interested in starting up a new business in the North Somerset Council area, please contact us to see how the hive can help.
