Firstly a reminder – if there is no agreement in place, it’s likely that the Partnership Act 1890 will apply. The legislation doesn’t reflect how partnerships run in the modern world, and partners can find that it doesn’t provide the protection they expected.
1. Capital share
Partners will usually have committed capital to the partnership so it’s vital that the agreement states how much each partner is contributing. If this isn’t included, the Partnership Act provides that each partner owns an equal share.
2. Profit share
Be sure to spell out each partner’s share of the profits from the partnership. As with the capital share, the Partnership Act provides that each partner is entitled to an equal profit share unless otherwise stated.
3. Management rules
It’s useful to set out the work input required from each partner. This helps in providing clarity over how much time and attention is expected from all partners, and can help avoid future disputes.
4. Partner entitlements
Standard employment rights including annual and parental leave don’t apply to partners as they are not employees, so it’s advisable to set out what partners are entitled to.
Under the Partnership Act, the retirement of one of the partners means the end of the partnership. Partnership agreements should therefore outline how a partner can leave the partnership and how their capital share will be valued.
6. Dealing with disputes
The agreement should state how disputes between the partners will be handled, and ultimately on what grounds a partner can be expelled from the partnership, as well as what process would apply.