If you are trading in partnership without a written partnership agreement, then your partnership is governed by the Partnership Act 1890. This is a piece of legislation which is over 110 years old and which fails to take into account modern business requirements and situations.
It is therefore essential to have a formal partnership agreement regulating the partnership. What is to happen when a partner dies or wants to retire, how profits are to be shared and the proportion in which capital assets are owned. A partnership agreement can also deal with such matters as disputes, taxation, holidays, management structure, removal of partners and non-competition. A partnership agreement is just as important for two people running a shop as it is for a firm of certified accountants.
Without a partnership agreement, the following could happen:
1) Under the Act, there is an implication that all assets are jointly owned and that all profits are equally shared. This is rarely the case.
2) The partnership can be ended by any partner without giving any notice. This could have a disastrous effect on the business for the continuing partners.
3) The partnership is immediately determined on the death of any one partner and the personal representatives of the deceased partner can insist on the realisation of the partnership assets.
Wills Plus can prepare a partnership agreement for you at a very reasonable cost. You will then have peace of mind, knowing that your business affairs will be run as you and your fellow partners would wish rather than relying on a piece of outdated legislation.
