When a handshake is not enough: why you need a Partnership Agreement by Martin Truman

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When a handshake is not enough: why you need a Partnership Agreement
by Martin Truman

If you set up in business with one or more other people but do not wish to set up a limited company, a partnership arrangement will be deemed to exist at law without the need for a formal contract. However, whilst a written partnership agreement is not required to form a partnership, if you wish to avoid uncertainty and the automatic application of potentially unsuitable statutory law, a formal agreement is a wise investment.

What happens if we don’t sign a Partnership Agreement?

In the absence of a written agreement, the provisions of the 1890 Partnership Act will apply. In essence, these state that all the partners are equal and share profits, losses, start-up and running costs as well as the workload equally. Whilst the provisions are intended to provide an equitable framework for running your business, in reality, there are significant implications. For example;

- all partners will be entitled to share the profits equally regardless of how much capital, effort or skill they bring into the business

- any partner can bring the partnership to an end just by giving notice to all the other partners and the partnership will automatically dissolve if a partner dies

- all partners will be jointly and severally liable for the liabilities incurred by the company. This means that if one partner takes on a commitment and fails to deliver on it, you will be equally liable to remedy the situation. And if a debt cannot be paid, then the creditor may pursue each of you individually, meaning that one of you may be forced into the position of paying the whole debt by yourself

- should a partner get into financial difficulties then his or her creditors can take assets from the partnership to settle them

- all partners will be considered

Author's Biography:

Martin Truman is head of commercial law firm, Truelegal Solicitors. For more information about Partnership Agreements visit http://www.legal-advice-centre.co.uk/partnership-agreement.html

Posted on: March 28,2006

Email: martin.truman@truelegal.co.uk
Website: http://www.legal-advice-centre.co.uk/