A partnership is defined in section 1(2) of the Partnership Act 1890 as a “relationship which subsists between persons carrying a business in common with a view to profit”.
It is common for a business to be formed between friends or family members. Most often this is done by way of the formation of a limited liability company. Where that mechanism is not used, a partnership is formed – sometimes unintentionally. In these circumstances, the 1890 Act sets out how a partnership should be managed in the absence of a written partnership agreement.
It is important to be aware of the rights and duties that are imposed by the Act. A partner may not be suitable for the operation of your partnership. For example:
- Under the Act’s default agreement, there is no right to expel a partner even for gross
misconduct; - Anyone partner may dissolve the partnership without the agreement of the other, simply by
giving oral notice at a partners meeting that the partnership is dissolved; - If a partner dies, the partnership automatically dissolves; and
- There is no general power to retire.
For this reason, we recommend that a tailored partnership agreement is drafted that excludes certain rights. It sets out the rights appropriate to the individuals, taking into account the specifics of each partner. This ensures that any issues or disputes that arise in the running of the business can be dealt with under the terms of the bespoke agreement.
We can advise on all aspects of creating formal partnership agreements and on the implication of clauses set out in existing partnership agreements. For any specific queries or assistance in creating a partnership agreement, contact us.