For many entering into business with another person(s) it is a step towards realising a long held ambition or it is the next step in your career ladder. A Partnership can be formed with or without a Written Partnership Agreement. If this is the case, do you really need a Written Agreement? Why bother?
But would you leave important Partnership decisions such as: Business Management, Profits, Partners and Dissolution all to the potentially harsh provisions of an Act of Parliament dating back to 1890?
Without a Written Partnership Agreement the provisions of the Partnership Act 1890 (PA 1890) are expressly or impliedly excluded they will apply to your Partnership as a default position, whether you want it to or not.
Let us take some of the Partnership issues mentioned above to demonstrate the harshness of the PA 1890 unless excluded:
- Business Management. Partners can all have a say in matters but any decisions about the day to day running of the Partnership will be dealt with on a majority basis. This may mean that a number of the Partners are left unhappy if they disagree with a decision. In your Partnership Agreement you might specify who can decide what, whether all Partners need to agree to certain key decisions or whether less important decisions can be delegated.
- Profits for instance, are considered to be equal amongst Partners who are also responsible for any liabilities incurred. It also means that any Partner cannot claim interest on any Capital which he or she has contributed. There may be reason not to have equality of profits or capital. This could be fixed to contributions to the Partnership or initial contributions.
- Partners cannot introduce new Partner or remove existing Partners unless all the current Partners agree. The latter is likely to cause some difficulties particularly if a Partner has acted in a way which has or will damage the reputation of the Partnership. It may be preferable to have a majority rule provision in instances of gross misconduct.
- If a Partnership has not made provisions to exclude the PA 1890 it means that any Partner has the right to give the other(s) notice to dissolve the Partnership. There is no minimum notice period under the PA 1890. This could mean that a Partner could give immediate notice to dissolve the Partnership. Also under the PA 1890 where a Partner dies or is declared bankrupt the Partnership will be automatically dissolved. This might not be necessary especially if there are a number of Partners in the Partnership.
Having a Written Partnership Agreement could therefore be beneficial in helping the smooth running of a Partnership. It also gives certainty to everyone who knows what is and is not expected of them.
We have experience in drafting Partnership Agreements and have experience of handling expensive and protracted legal disputes which are often caused by the absence of a Written Partnership Agreement. For more information about the issues which are raised in this article please contact Susan Lewis on 01924 387110.