We receive a surprising amount of enquiries from business partners who went into business with a friend/acquaintance/family member but actively chose not to draw up a partnership agreement. This decision has been made for a number of reasons but one of the primary reasons is to avoid the expense of a Solicitor. What businesses fail to realise having reached this demonstrably poor conclusion is that, if the partnership does not come to an amicable end, the legal fees you have circumvented at the outset of the business relationship are paid thrice over at the end.
Partnership agreements (“the Agreement”) are all encompassing and leave no room for ambiguity. The Agreement will generally start with the names of the individual partners that form the business, address the purpose of the business, address how much each partner has chosen to invest in the business and what directives the business has and hopes to achieve.
Partnership Agreements are not only important for the purposes of incorporation and outlining each partners entitlement moving forwards but also needs to address how the business relationship is going to come to an end. There are different ways whether that be a mutually agreeable ‘end’ or a forced ‘end’ as a result of unforeseen death for one or more of the partners.
The partnership can be dissolved if for example, relationships break down or the partners agree that they want to dissolve the business and start again on their own. This however, is best undertaken when the partnership is governed by a partnership agreement. The Agreement will set out how the business can be dissolved and for what reasons. Should one of the partners die unexpectedly, the partnership agreement will address and confirm what happens to that partner’s interest in the business. Thus, removing any question marks there may be over what happens to the business, if it spells the end of the business or if a family member will replace the partner and so on.
The key points to be considered within a partnership agreement are; the percentage of ownership, allocation of profits and losses, who can bind the partnership and who can make decisions, what happens upon the death of a partner within the business and addressing the resolution of disputes.
Those partners who choose not to address matters such as this at the outset often find themselves in an uncomfortable predicament. A partner dispute may have arisen and is impossible to resolve. There may have been a death within the partnership and now a family member wants to be involved in the business, one partner may be taking more profit than they are supposed to but there’s no mechanism for redress as it’s your word against theirs.
Partnership agreements, along with Terms of Business and other ancillary agreements are the back bone of any business. Agreements of this nature have to be right from the start to avoid the inevitable downward spiral should relationships break down. There is a great deal of trust in partnerships, however, without a partnership agreement there is also a great deal of risk.
Michael Lewin Solicitors receives numerous enquiries of this nature and will always offer advice on the next best step. We will also assist with drawing up any future agreements you require to avoid the same situation from occurring again. We offer a fixed fee for advice and the drafting of documents so you need not fear the cost associated with legitimising the partners needs and the business’s needs.
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