Partnerships can be fraught with problems. Getting a Partnership Agreement in place at the start is a wise move and will help regulate the business throughout its life.

Early days
People starting a business venture with others they know and trust is normally all about planning what they will do to make their business successful. It will involve a multitude of issues focussing on money and finances, how to get the product or service in front of prospective clients, closing deals and how to provide a good service.

However, most business ventures will reach a time when relying on 'what was said when you set-up' is not going to work too well. So what do you do If things are not working out as planned or someone wants to move on and sell their share of the business? How do you deal with it if you cannot agree between yourselves?

What happens without a Partnership Agreement
If there is no Partnership Agreement. The Partnership Act 1890 provides the rules that govern a partnership. There are two very important 'rules' contained within the 'default' Partnership Agreement provided in the Act:

All partners are entitled to share the profits equally no matter how much capital, effort or skill they bring into the business and any partner can bring the partnership to an end by giving notice to all the other partners.

If one partner dies the partnership is automatically dissolved.

Also there will be many issues with no agreed provisions to help sort out any problems that develop.

How does a Partnership Agreement help?
With a Partnership Agreement in place there is an agreed written structure to your business, which can spell out each partner's responsibilities, rights, profit/liability sharing, how to go about entering and leaving the business and also the terms on which disputes are resolved.

Typically Partnership Agreements cover duties of partners, management, salaries, allocation of profits, borrowing money & reimbursement, non-competition, powers of attorney, meetings, admission of new partners, leaving or retiring, termination and dispute resolution.

Can't we trust each other without a bit of paper?
Many people think that having a Partnership Agreement is like 'planning for divorce whilst getting engaged' but it is not like that really. Above all it is a practical device to ensure the business has proper foundations to deal with a range of fundamental issues that will come up at some time or other.

If you can't agree how these matters are to be regulated when you are setting up or during the 'honeymoon period' of you partnership just imagine how difficult and costly it could be to deal with if things were not going so well between partners or one partner loses mental capacity.