What is a Partnership Agreement and why would you need one?

What is a Partnership Agreement and why would you need one?

man and woman silhouette shaking hands in an office with the sun setting in the background

A Partnership Agreement is a written agreement made between business partners necessarily outlining several important clauses, such as:

  • Duration of partnership
  • Profit and loss distribution
  • Dispute resolution
  • Percentage of ownership
  • Authority
  • Severance

For example, a Partnership Agreement is used to frame exactly how this business relationship will be navigated. Factors such as responsibilities of each party, and mechanisms for decision-making must be laid out clearly. Is one partner a silent partner? Who is the managing director? These types of questions must be evaluated and formalised. There must be an agreed division of shares and profits. The agreement will outline how this relationship should resolve disputes amicably, or what happens in case of withdrawal from the partnership ie. the severance clauses, or what happens in case of a death. Another important process which will have been outlined in your agreement is the mechanism for it changing. A change in the contract will require all the partners to agree to this change in writing, however nonetheless the process should be clear and previously stipulated. There are several unexpected incidents which can alter the anticipated route of your business partnership. Thus, a partnership solicitor at Adam Bernard with a first-hand history of experience dealing with said incidents, will be able to foresee and eliminate such incidents.

See: https://www.adambernards.co.uk/legal-contracts/partnership-agreements/

 

Why have you sought a partnership?

Forming a partnership offers you several benefits, from a distribution of losses (and profits), widening the talent pool, to greater funding options. However, keeping yourself legally protected despite these benefits is hugely important. This legal protection will help you avoid costly court cases if things go wrong, together with providing a clear and secure framework for the relationship.

There are several different types of partnerships, from an ordinary Partnership, Limited Liability Partnerships to Limited Partnerships. Our partnership solicitors at Adam Bernard will be able to assist you in navigating the legal particularities and differences of your business adventure. Most important to navigating your partnership is where your liability falls. Thus, with Adam Bernard’s help with your Partnership Agreement you will not only keep you protected in a worst-case-scenario, but also ensure your business reaps the most benefits from said partnership.

Partnerships account for 6.7% of businesses in the UK (Hopkins, 2021). Based on statistics collected in 2020, 70% of business partnerships fail (Ward, 2020). Setting up clear terms for all involved in the partnership will decrease the likelihood of disputes and differences tarnishing the running of your business.

a person’s hands over a contract on a table

The Partnership Act 1980

If the partnership is not formalised by an agreement, the partnership instead automatically falls under the Partnership Act of 1980. The Partnership Act assumes an equal division of shares, responsibilities, and profit, and pays little to no attention to the specific and unique nature of your partnership. In view of maintaining the integrity and uniqueness of the business, allow Adam Bernard to secure this by drafting or overviewing your Partnership Agreement. This will override the Partnership Act and ensure that solicitors who have listened and understood your company’s priorities and ethos will be spearheading how the partnership is laid out.

 

Dixon Coles and Gill v Nicholas Baines (2021)

Business protection within partnerships has developed in case law, mostly beneficial accompanied by a contractual foundation to your Partnership Agreement. Dixon Coles & Gills v Baines LLP resolved the assumption that the remaining, innocent, partners of the firm were expected to compensate for the misapplication of funds. The Court of Appeal held that a partner should not be treated as party to another partner’s fraudulent breaches unless they are implicated in some way. For reference, Dixon Coles & Gills operated as a Limited Liability Partnership (LLP) as most law firms do.

While case law can offer some security, a legal eye from a partnership solicitor at Adam Bernard will offer protection tailored to your business, as well as enshrining newer and complicated examples of how such partnerships can turn sour. This is easily avoidable, with the thorough assistance of one of our partnership solicitors at the firm. Avoid the litigation cost and hassle, by protecting your partnership first!

See: https://www.judiciary.uk/wp-content/uploads/2021/07/Dixon-Coles-Gil-v-Bishop-of-Leeds-judgment.pdf

 

Why Adam Bernard?

At London-based Adam Bernard, we have an experienced team of partnership solicitors which can help you navigate your Partnership Agreement while ensuring you leave with the utmost protection and autonomy in your corporate relationship.

We offer a free 15-minute consultation and operate strictly on a fixed fee basis.

 

Contact an adviser:

Sara Hussain

Commercial Contract Specialist

Where can you find us?

Adam Bernard Solicitor’s office is located near Upton Park Station, adjacent to the famous West Ham Stadium, with excellent access to the underground and bus routes. If you are driving then there is free parking available at the front and the rear of our office building.

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