Checklist for setting up a Partnership Agreement

A partnership is a flexible way for two or more people to run a business.  However, unlike shareholders in a limited company, partners have no financial protection if the business is unsuccessful. 

Here’s a brief checklist to setting up a partnership:

•         Any group of people who want to set up a business together.  If a partner is under the age of 18, they cannot be legally bound by the terms of the partnership agreement.  Individual members must register as self-employed with the HMRC.

•         Companies can be members of a partnership.

Partners will share in the responsibilities of running the business and the profits or losses of the business.  The actual responsibilities will depend on:-

•         what type of partner they are,

•         any Partnership Agreement.

•         General partners – these invest in and run the business as well as share in the profits.  General partners are liable for any debts the partnership may have.  Every partnership must have at least one general partner.

•         Sleeping or dormant partners – these invest money and share in the profits but do not take a part in running the business.  Sleeping or dormant partners are also responsible for any debts the partnership may have.

•         Companies – these also invest in and run the business and share profits as well as being liable for any debts the partnership may have.  Companies also have additional tax and reporting obligations.

A Partnership Agreement is a legally binding document between partners that describes how the partnership will be run and responsibilities and rights of the partners.  A Partnership Agreement will:-

•         Set out the business name, type of business, names of partners and start date,

•         Set any closing or renewal dates,

•         Set out the amount of capital each partner contributes to the business,

•         Set out the way profits will be shared and whether any partners will also be paid a salary,

•         Set out working arrangements, management tasks and whether certain decisions can be made by one partner or whether they require collective agreement,

•         Set out how new partners can be appointed, what happens if a partner wishes to leave the partnership and/or how partners can be made to leave.

If you do not have a Partnership Agreement, your partnership will be governed by the Partnership Act 1890.

•         Partnerships can be named after the partners or given a business name,

•         If the partnership uses a business name, partners’ names must be displayed on business stationery and websites unless there are more than 20 partners, in which case stationery and websites need to show the address of the main place of business,

•         Business names must not be too similar to or the same as existing businesses and should not contain offensive or misleading words.

If you are in the process of setting up a Partnership, Lawson-West solicitors can help advise on and draw up a Partnership Agreement so that you can run the business in the way you plan to and we’ll cover the legal aspects.  Call Katherine Cereghino on 0116 212 1148 now.

Lawson West LLP is an authorised member of the Law Society’s Lawyers for your Business scheme, a specialist scheme aimed at ensuring that businesses get the legal advice that they need before any problems arise. As part of this scheme, we offer a free half hour consultation.