All partnerships, whether general partnerships under the 1890 Partnership Act, LLPs or Limited Partnerships should have a Partnership Agreement, which is sometimes also called a Partnership Deed.
The issue with partnerships under the Partnership Act 1890 is that the act is rather vague and not helpful at all to running a business. There are some aspects of the 1890 Act which many of those in a partnership do not realise, for example:
- A partner is not required to actually do anything towards running the business; i.e. they do not have to turn up to work.
- A partner shares equally in the profits of the business irrespective of the amount of time or effort he or she has put into the business.
- There are no set number of days holiday.
- A partner cannot retire. If one partner decides to leave or dies the partnership has to be dissolved, the assets divided up and a new partnership formed. This can be time-consuming, complicated, and expensive.
- A partner cannot be expelled.
For these reasons we always recommend that all partnerships enter into a Partnership Agreement of Deed to regulate these matters and to allow the partnership to continue on the exit of one partner.
A good Partnership Agreement sets out the rights and responsibilities of the partners and crucially allows the partnership to continue when one partner leaves. It also sets out capital requirements and how drawings can be taken.
Click here to find out what to include in a Partnership Agreement.
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