Use this partnership agreement to create a business partnership.
What is a partnership agreement?
A partnership agreement is a document used when two or more partners engage in a business with a view to making a profit. It sets out each individual partner's rights and responsibilities, provisions for running the business day-to-day and what happens if a partner dies or the partnership dissolves.
When should I use a partnership agreement?
Use this partnership agreement template:
when you and one or more other individuals want to create (or have already created) a business in partnership
to clearly set out:
the partners' capital contributions
how profits are split
how decisions are made
what is expected of the partners
what happens if a partner wants to leave
only for individuals based in England, Wales or Scotland
What should a partnership agreement include?
This partnership agreement covers:
- who the partners are
- partners' capital contributions and profit shares
- partners' duties and entitlements
- management and decision-making
- partners leaving
Why do I need a partnership agreement?
A partnership agreement sets out how your business will prepare for common business scenarios, plan how a partner may leave, or handle disproportionate partnership contributions. Setting up clear business expectations will help partners avoid future misunderstandings. Other terms may include buy-out options and how the partnership can be dissolved.
What is a partnership?
A partnership, as defined in the Partnership Act 1890, is a relationship between two or more partners carrying out a business with a view to making a profit. A partnership, unlike a company, is not a separate legal entity.
Could a company be a partner in a partnership?
Partners can be individuals, companies and limited liability partnerships (LLP).
What is a capital account?
A capital account is where partners contain the following types of transactions:
contributions of their initial and subsequent investments (capital)
any interest payable on their share of the partnership capital
A partnership can maintain a single partnership capital account for all the partners. However, it is easier to maintain separate capital accounts within the accounting system for each partner. This way, in the event of a partnership liquidation or a departure of a partner it is easier to determine the payments and liabilities of each partner.
Partners also cannot withdraw any capital money from the account while in a partnership unless they have the written consent of all of the partners.
What is a current account?
Each partner's share of any profit will be credited to the current account. Any share of loss, withdrawals by the partner or tax payments will be debited from this account.
How are profits attributed and losses accounted for?
The partners will share the profit and bear any losses for any partnership year (eg each period of 12 months ending on the accounting reference day or any other period determined by partners). An accounting period is usually a 12 month period for which the partnership has to prepare accounts.
How can partners exit the partnership?
Partners may exit the partnership:
by voluntarily retiring
by involuntary retiring. This applies if a partner dies or if a partner needs to retire because they have not been able to perform their duties for a long period
by written notice of expulsion. A partner can be expelled from a partnership for
serious breaches of the partnership agreement
if a bankruptcy order is made against them
if they have failed to pay money owed to the partnership within 10 business days or if they no longer hold a necessary professional qualification
What obligations are imposed on partners that leave?
Each leaving partner:
must pay into the partnership's bank account all sums that are due from them to the partnership
must return all accounting records, letters and other relevant documents in their possession
may (if specified in the agreement) not solicit customers, entice away employees or engage in competing business
Am I personally liable for paying my taxes as a partner?
Ask a lawyer for advice on:
carrying out your business through a limited company or another type of organisation
any partner that is not an individual (eg one is a company or limited liability partnership)
This partnership agreement is governed by the law of England and Wales or the law of Scotland.