A Partnership does not need an agreement to exist. Such partnerships are called partnerships at will and are governed by the provisions in the Partnership Act 1890 (1890 Act); however, the effect of this is that it exposes the partners to   vulnerability and to the default provisions of the 1890 Act which may have unintended and undesired results.

Partners and individuals who are considering forming a partnership should consider the effects of not having a partnership agreement in place; such as where one partner gives notice to the partner(s), without any provisions to the contrary, the default provisions in the 1890 Act mean that the entire partnership could be brought to an end and would be have to be dissolved upon the notice of one of the partners.

A Partnership agreement therefore can override these provisions; thus, enabling partners to leave smoothly and without having the partnership being brought to an end.  The agreement would specify the circumstances in which the partnership would be dissolved.

In addition, the 1890 Act does not take into consideration the contributions of any one partner over another. As per the default provisions, all profits as well as losses are to be borne by the partners equally.  This is despite the individual financial contribution and the time and commitment of each partner towards the partnership. On the other hand, a carefully drafted partnership agreement can set out how the profits and losses are to be apportioned to each partner.

A well drafted partnership agreement will therefore enable a partnership to operate in a manner that is specifically tailored to suited to it.

Formalising a partnership in such a way will also provide much-needed guidance and direction when disputes between partners arise. This could be on advising what steps could be taken in certain situations and how such matters are to be resolved; this would no doubt reduce the disruption caused by a dispute and also help reach resolution in a quicker and cheaper way.

As you can see that a Partnership agreement is an invaluable tool to any partnership and should not be taken lightly. For partners who already have a Partnership agreement in place, it is also worth having your Partnership agreement reviewed and updated to ensure it covers your current requirements.

At Nath Solicitors, we are experienced at drafting bespoke Partnership agreements tailored to match our client’s intentions and requirements. For further information, please contact us today.

 

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