The law in this country currently provides that there is no legal requirement for those involved as partners in business to have a written partnership agreement in place. This understanding is founded upon the fact that the Partnership Act 1890 provides that it is possible for a partnership to come into existence automatically in the event that particular parties undertake the “carrying on [of] a business in common with a view of profit”. Although there may nothing in law to create this foundation experience shows us this is not wise when it comes to estate planning, inheritance tax and death in general. Call us if you too agree that creating a business with someone needs planning.
The value of a partnership agreement has been effectively endorsed by the fact that the Partnership Act 1890 is still applicable in this area despite the fact that the Act itself is over 120 years old. Therefore, the remit of this legislation cannot be expected to meet the specific needs of individual parties derived from modern business practices. The Partnership Act 1890 will apply in the event that those parties that are involved in a given business have not made any express provision with regard to their relationship through the terms of a bespoke partnership agreement. This is because the Act includes a number of provisions that have been recognised as being concerned with the running of a partnership that is considered to be implied where there is not a written partnership agreement in place.
Partnership Agreements for business
Principally, it is to be appreciated that such positions have been taken to include – (a) the business’ management; (b) the way in which property is held; (c) the sharing of profits and interest on capital; (d) new partners introduction and the removal of current partners; and (e) assets dissolution and their post-dissolution distribution. However, there is still also a need to recognise the fact that not all of the standard partnership agreement
positions to have been recognised under the terms of the Partnership Act 1890 are considered to be desirable in the circumstances of a given case leading to the need for a partnership agreement.
With this in mind, it is clear that there are a number of useful provisions that are to be included in a written partnership agreement in the event that the Partnership Act 1890’s default position is considered to be unsatisfactory in a given case or the Act fails to cover those items the partners want to see included in a formal written partnership agreement. By way of illustration, such provisions have been taken to include – (a) drawings; (b) business management; (c) time input, holidays, leave and illness; (d) holding of property; (e) sharing profits and interest on capital; (f) the introduction of new partners; (g) the removal of partners; (h) goodwill; (i) restrictive covenants; (j) dissolution of the partnership; (k) distribution of assets post dissolution; and (l) dispute resolution.
Written Partnership Agreements
Therefore, it is clear that a written partnership agreement could serve to provide for the minimisation of any potential misunderstandings among the partners in a given case by then fully setting forth their rights, duties and liabilities. This kind of formal partnership agreement will also serve to provide guidance with regard to what to do in the event of a dispute arising among the partners themselves. In addition, it has also been found that a bespoke partnership agreement can serve to provide the kind of clarity and stability that both investors and bankers alike prefer for the purpose of undertaking dealings together. On this basis, it has been recognised that the partners to a given business are considered to be free to agree to any terms they like, provided the terms are not illegal or contrary to public policy.
However, it is also to be noted that, unlike with a company which must make all its documents available for public inspection, it is possible for a partnership agreement
to be kept confidential between the parties to it and does not have to be disclosed to the general public at large.
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