Most partnerships are created by a formal partnership agreement placing the key aspects into writing, however a partnership can be implied by law regardless of the intention of the parties. Therefore an informal agreement can become a partnership with unintended effects with property and division of profits. Partnerships can be complicated so legal advice is highly recommended when considering business partnerships.
If there is not a clear expressed partnership agreement, the general rule is that the profits and losses are divided equally between the parties. A risk associated with this is that every party is an agent of the partnership meaning each partner is bound by the decisions of the other partners.
The partners should consider the following details to ensure that all their rights and responsibilities are expressly set out. The partnership agreement should comprise at least:
1. Name and addresses of the partners
2. Name of partnership and business activity
3. Date when the partnership commenced and the duration
4. The capital input by each of the partners
5. How profits and losses are to be split
6. Management of the partnership
7. Holidays and sickness
8. Provisions for retirement, death and departure.
A partnership is not a separate legal entity meaning that each of the partners are jointly liable to bear losses and to make good financial loss caused to third parties through the negligence of the other partners.
Following the enactment of the Limited Liability Partnership 2000 major changes have been brought. The two main advancements include the effect of actions for professional negligence and the fact that as a partnership expands, it becomes harder for individual partners to observe the other partners activities within the partnership.
By entering an incorporation document, the partners can limit their liability upon dissolution. However, individual partners can remain jointly liable for their own negligent acts.
Here at Seatons, we can draft partnership agreements tailored to your specific circumstances. Please call us for a fixed fee quote to carry out your instructions.