Partnership agreement

A general partnership comes into existence when two or more people carry on business together with a view to profit. No registration, no paperwork, no decision required. That is its convenience and its risk, because a partnership with no written agreement is governed by the default rules in the Partnership Act 1890, and those rules are rarely what the partners would have chosen.

What the defaults actually say

Profits and capital are shared equally, however much each partner contributed or does. No partner is entitled to be paid for working in the business. Any partner can dissolve the partnership by giving notice, and the death or bankruptcy of a partner dissolves it automatically. A firm built over fifteen years can be wound up because one partner gave notice on a bad afternoon.

This template replaces those rules with terms the partners settle while they still agree.

Personal liability is the thing to be clear-eyed about

A general partnership is not a separate legal person. Each partner is personally liable, without limit and jointly with the others, for the debts of the firm. A partner whose co-partner runs up an obligation is liable for all of it, not a share. A limited liability partnership or a limited company is a separate legal person and gives its members or shareholders limited liability, at the price of registration at Companies House and annual accounts on the public record. That trade is worth making deliberately rather than by inertia, and it is the first conversation to have before completing this document.

What to complete

Schedule 1 carries the partners, their capital contributions, profit shares and drawings. Schedule 2 carries the decisions that need every partner to agree rather than a majority, which is the practical control mechanism and should be tailored rather than accepted. Clause 22 offers two ways of resolving disputes.

The clauses that matter when someone leaves

Retirement, expulsion, and what happens on death or incapacity: whether the partnership continues among the others, how the outgoing partner's share is valued, and over what period it is paid out. Valuation is where partnership disputes concentrate, because a formula agreed in advance is something everybody can live with and a valuation argued after the event is something nobody can.

Where the firm holds property, where partners are contributing unequally, or where you are weighing a partnership against an LLP or a company, our commercial solicitors work through the structure before the document.