Debitoor's accounting dictionary
Partnership agreement

Partnership agreement - What is a partnership agreement?

A partnership agreement is a contract between all parties involved in starting a partnership structured business. The contract covers the rights & responsibilities of each partner.

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When establishing a partnership, the partners should create a written partnership agreement to reduce the potential for conflicts and complications.

Although it is not mandatory to create your own partnership agreement in the UK, it is highly recommended so that it covers the specifics of your business.

In the UK, if you do not create a partnership agreement, the Partnership Act 1890 will apply. This Act essentially divides all rights and obligations equally between all partners.

What should be included in a partnership agreement?

Each partnership may differ in terms of objectives and how items are divided. The key is to be as detailed as possible. Have thorough conversations with all partners to come up with an agreement that each partner accepts. Some items that a partnership agreement may cover are:

  • The responsibilities of each partner
  • The percentage of ownership of each partner
  • The length of the partnership
  • How to divide profits
  • How to add new partners
  • How to leave the partnership
  • The amount of capital each partner contributes
  • The decision-making process (e.g. voting system)
  • How to manage the death or disability of a partner
  • Who the nominated/general/designated/limited partner is (based on partnership type)

The partnership agreement can include anything you think may be relevant to your business. It may be beneficial to discuss the contract with a lawyer to ensure that all of the important aspects are covered.

How do you create a partnership agreement?

It is ultimately up to you and the partners to decide how to create the partnership agreement. It is a legal contract, so it should be worded as such, and signed by all parties.

There are several templates you can choose from online, or you can create one yourself, or speak to an attorney to draw up a contract.

At a minimum, the partnership agreement should include the words ‘partnership agreement’, the full names of all partners, a few terms outlining the rights and responsibilities of the partners, and the date and signature of each partner.

It is extremely important to keep a copy and the original partnership agreement in a secure place in the case of any future conflicts.

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