If you run a business as two or more partners, having a written partnership agreement is critical. This legally binding document outlines how your business operates and protects all partners from disputes and unforeseen challenges.
But why is it essential, and what should be included to ensure your business is protected?
The Importance of a Business Partnership Agreement
In today’s ever-evolving world, businesses face increasing pressures, from regulatory changes to resource constraints. A robust written partnership agreement provides the clarity and structure needed to avoid disputes and ensure the smooth running of the business.
Without a written partnership agreement, your business may default to being governed by the outdated Partnership Act 1890. This legislation offers only modest protection to modern business partnerships and can expose your business to unnecessary risks.
For example:
- Any partner can dissolve the partnership at any time, without the agreement of others.
- There is no provision for expelling or suspending a partner, even in cases of misconduct or reputational damage.
A bespoke partnership agreement mitigates these risks and ensures your business operates within a secure and well-defined framework.
What Should a Business Partnership Agreement Include?
A business partnership agreement must be tailored to the specific needs of your business. It should address key areas to protect both the business and its partners.
1. Premises
- Clearly define ownership or leasing arrangements, as business premises often represent a significant asset or liability.
2. Profit Sharing and Financial Responsibilities
- Outline how profits and losses will be distributed among partners and how liabilities will be managed.
3. Roles, Responsibilities, and Performance Standards
- Document each partner’s responsibilities, performance expectations, and requirements for ongoing training and development.
4. Decision-Making Processes
- Establish a clear process for making decisions, resolving disputes, and ensuring fair participation from all partners.
5. Retirement Provisions
- Address and ensure clarity around compulsory retirement and succession planning.
6. Expulsion and Suspension Clauses
- Define circumstances under which a partner can be expelled or suspended, safeguarding the business against misconduct or non-compliance.
7. Non-Compete and Restrictive Covenants
- Protect your business from unfair competition by setting reasonable restrictions on partners after they leave.
8. Leave Policies
- Set out policies for study leave, parental leave, holidays, and other absences to ensure fairness and operational continuity.
9. Last Partner Standing
- Include provisions addressing whether the business can operate with just one partner, or if dissolution is required in such circumstances.
When Should You Review Your Partnership Agreement?
A business partnership agreement is not a one-time document. It must evolve as your business grows and changes. While the ideal scenario is that the agreement remains in the background of day-to-day operations, it must be reviewed regularly to stay effective and relevant.
Regular Reviews Are Essential
- Your agreement should be reviewed periodically to reflect changes in legislation, policies, or the business’s circumstances.
Update After Partner Changes
- Always update your agreement whenever a new partner joins or an existing partner leaves. Failure to do so can lead to significant legal and operational challenges.
The Risks of Operating Without a Current Partnership Agreement
Without an up-to-date business partnership agreement, your business could face:
- Disputes over profit sharing or decision-making.
- Inability to remove or suspend partners causing reputational damage.
- Unfair competition from former partners without enforceable restrictive covenants.
Avoid these risks by ensuring your partnership agreement is comprehensive, current, and tailored to your business’s needs.
Contact Us for Business Partnership Agreements and Reviews
At Scott Bailey LLP, we specialise in drafting and reviewing businesspartnership agreements to protect your business and ensure its smooth operation.
Whether you need a new partnership agreement or an expert review of your existing one, our experienced partnership solicitors can help.
✔ Bespoke agreements tailored to your business’s unique needs.
✔ Expert advice on compliance with the latest legal regulations.
✔ Support to safeguard your business against disputes and liabilities.
Don’t leave yourself or your business vulnerable. Contact us today to discuss how we can help you protect your business partnership with a robust and up-to-date partnership agreement.
Contact us now to get started.
Ben Ironmonger is a Partner and Head of Company and Commercial at Scott Bailey LLP. Ben has over fifteen years’ experience in advising on business legal matters across a range of sectors.
Scott Bailey LLP is a law firm based in Lymington, Hampshire. Our company and commercial solicitors advise clients in Southampton, Bournemouth, Winchester, and across the South Coast region. Contact us for a fixed fee quote on your business law matters.
