Partnership agreement (Deed of partnership)
A partnership agreement also called a deed of partnership is an agreement between partners who want to run a joint business. A partnership agreement is legally binding on all members (partners) a partnership. It is not mandatory to have a partnership agreement in order to set up a partnership, but it is the best way to regulate how the joint business will work and to avoid future disputes and misunderstandings between the partners.
You can draw up a partnership agreement on your own or commission a professional adviser to do it for you. If the partnership does not have a deed, all contentious issues will be settled by the provisions of the Partnership Act 1890. This is not always desirable, since the Partnership Act 1890 does not cover all problems of the contemporary business practice.
A deed of partnership usually contains the following information and regulations:
- Fundamental details about the partnership such as its business name, the names of its members (partners), business address and the type of the business activities conducted.
- The amount of capital invested by each partner.
- The way to share profits or losses among partners, and other financial issues such as possible salaries for partners.
- Management and working arrangements; that is to say what and how each partner will contribute to the partnership and how the decisions will be made.
- Changes and amendments to the partnership, such as how to appoint a new partner or what happens if a partner goes out of business or dies.