A partnership is a business formation that involves joint owners who are responsible for the running of the business. The profits, losses and liabilities of the business will be shared between the partners. For this relationship (and in turn, the business itself) to run effectively, there must be a valid legal contract, known as a partnership agreement, that regulates this relationship.
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Types of partnerships
Partnership arrangements are suitable for various businesses, for example, doctors and accountants. There are two main types of partnership:
Limited liability partnership (LLP)
An LLP is formed when one or more partners invest, but they do not participate in the running of the business. The partners are only liable up to the amount of their financial contribution.
A full partnership
A full partnership is for between two and 20 partners. Without a partnership agreement, the law will govern these partnerships. In order to correctly represent the specific requirements of the business, a valid partnership agreement is crucial.
Why do you need a partnership agreement?
Partnerships rely on the partners agreeing when there are decisions to be made and by their very nature, it is common for conflicts to occur. A partnership agreement protects the business, as well as the partners, from serious issues arising that could negatively impact the business. As partnership agreements can take many forms, a lot of the contractual terms will depend on the particular needs of the business and the partners.
Some issue that should be included in a partnership agreement are:
- The basic details about the business and partners, such as the name of the partnership, place of business and the date the business began.
- Whether the partnership is for a fixed period or will last for the lifetime of the relevant partners. It can also explain how to end the partnership.
- Funding options, including details about how extra funding can be achieved if needed and how the partners would do this. Ownership of assets provided by a partner should be clearly stated in the agreement, so there is no confusion as to who it belongs to - the partner or the business.
- How profits, as well as losses, will be shared between the partners. It is also necessary to detail when profits can be withdrawn from the business.
- Financial issues, such as banking arrangements including relevant accounts and the accounts system that the business will use.
- HR issues, for example, maternity and retirement provisions.
- The obligations and duties of the partners.
- Whether there is any limitation on partners’ authority.
- The management structure and how meetings will be conducted.
Contact our Partnership Agreement Lawyers in the UK
We can advise clients in relation to partnership agreements to make sure that their business is correctly protected. Our lawyers understand that a lot of businesses now have a cross-border element and we are well placed to assist in these cases since we have offices in the UK, Spain, Germany, Italy , Portugal and Tunisia. Our multi-lingual lawyers can assist clients in their own language, thus ensuring that the whole process is transparent and understandable.