If no agreement is in place it is likely that the Partnership Act 1890 will apply and the partnership will be deemed a ‘partnership at will’. Similarly, if an agreement has not been drawn up to cover all likely issues it is likely that this legislation will apply to those situations where the agreement is silent or unclear.
As you’d expect, a law dating from the nineteenth century doesn’t reflect how partnerships operate in the modern era. Consequences of being a partnership at will include:
- Any partner can dissolve the partnership at any time
- No partner has the right to expel another partner for any reason
- Death of one of the partners will automatically dissolve the partnership
- All partners are entitled to an equal share of the assets and have equal liability for the debts
- No partner has an automatic right to carry on the partnership.
We strongly advise all partnerships to protect themselves and avoid these and other difficulties by having a professionally drafted, up to date agreement in place. Look out for the next article in this series when we’ll be looking at tips to ensure you have a robust agreement in place.