What is a Partnership Agreement?
A partnership agreement (otherwise known as a partner agreement, business agreement, or partnership contract) is a written document that outlines the rights and obligations of each party that concludes this treaty. Such a contract is concluded by two or multiple individuals (or entities) who undertake a for-profit venture as companions.
Apart from specific rights and responsibilities, it also establishes a framework for how the mutual business must be operated and describes possible consequences for each party if the terms of the contract get broken.
A well-crafted partnership contract is very beneficial because it helps companions avoid misunderstandings and potential disputes, as well as be sure of the future of their mutual business enterprise. Should conflicts emerge, a solid partnership agreement will also offer mechanisms for resolving them.
If you are planning to engage new associates in your company, consider hiring an experienced lawyer in London. The expert will help you create an excellent partnership agreement draft from which both your business and companions will benefit.
Advantages of a Partnership Agreement
A partner agreement is an official document that is designed to regulate how business associates must interact, and what rights and liabilities they hold when they deal with each other to make a profit. It is vital for business companions to have a carefully worded contract in order to prevent any problems such cooperation may potentially bring.
Benefits of getting a partnerships agreement in the UK include:
- It provides certainty on how different issues must be addressed if they surface during the cooperation. A contract specifies how business decisions should be made, how profits and losses should be spread among partners, how liabilities are shared, and more.
- It helps to lessen the impact of disputes. If disagreements arise, a signed document will provide evidence on what companions conceded to when they came into a partnership, which may significantly reduce costs associated with resolving disputes.
- It designates the conditions for entry. A conflict can arise when one partner decides to introduce a new partner to the cooperation while the other existing partners do not want it. This is something a business contract can regulate as well. All parties agree on the terms under which a new companion can be accepted, such as by voting.
- It determines an exit policy. Such a contract defines a precise withdrawing scheme for each party. An exit plan is a way for one or more partners to stop their relationships. The contract clearly describes the circumstances under which one partner can exclude the other if they do not fulfil their part of the agreement. The document also proposes a plan to dissolve the business if all the parties are willing to cease cooperation.
- It clarifies roles. This agreement establishes what role each partner will play in the business, prescribing the duties and position of each party in the agreement. This helps prevent confusion and controversy between companions about how much each party should contribute.
What should be Included in a Partnership Agreement?
The document describes the nature of business and objectives of the partnership, as well as the individual contributions of each party, their specific rights and obligations. Important clauses in a partnership agreement comprise:
- start date, duration, and purpose of a partnership agreement;
- contact information of each counterparty that enters into the business agreement;
- description of the role of each partner in operating the business, their rights, duties, and powers;
- details on how gains and losses should be allocated among companions;
- information on decision-making procedures and dispute resolutions;
- definitions of partnership property;
- statements on individual capital contributions of each party and percentage of their ownership in the business;
- conventions for accepting new and eliminating existing partners;
- rules regarding the end of partnership, including voluntary and involuntary withdrawals from the business;
- financial accounting and methods of taxation.
What Happens If You Don’t Have a Partnership Agreement?
Sometimes business partnerships exist without a signed contract. In such cases, business relationships will be regulated by the Partnership Act 1890. According to it, all partners must be treated equally. This means that all financial losses and profits of the business will be divided equally if the dispute is settled in court. All partners will also hold joint liability if their operations result in any debts.
Can You Change a Partnership Agreement?
Changes to a signed business contract can be introduced through amendments. Amendments to a partnership agreement present a legal document, and they are aimed to add, modify, or remove certain provisions of the contract. Generally, amendments can only be added after all parties consent unanimously to make modifications to the partnerships agreement. However, parties can also establish their specific policies of changing the contract terms when entering into the agreement.
How Can We Help?
Developing new partnerships is pivotal in facilitating the growth of your business. A well-prepared partner contract can help you clearly define the rules of business relationships and protect your interests against possible disputes with associates.
Partnership agreement solicitors at Sterling Law have ample experience in crafting bespoke partnership contracts for different types of enterprises in the UK. Secure your business operations with a well-formulated partner contract that is perfectly tailored to your needs and lets you safely partner up with others to help you expand your business.
We can help with both reviewing and amending an existing agreement and drafting a new one.