Starting a new business? Tips on organising your business into a partnership

 

By Joanna Yates

There are different ways of organising the structure of your new business. For instance, a few of the choices you have are a private limited company, a sole trader and a partnership.

Unsurprisingly, many new business start ups choose to organise themselves into a partnership because there is far more flexibility and informality with this business structure compared to if you organise yourself as a company. This is due to the fact that with a partnership there is no formal arrangement. You can choose your own terms by which to organise your partnership by drawing up a partnership agreement.

Do – get a specialist commercial solicitor to draft a partnership agreement so that you can dictate the terms of your partnership. For example: how your partnership is run, who is responsible for which decisions, how profits are shared, what and who can terminate the partnership and how confidentiality and competition by all the partners should be dealt with.

It is not essential to have a partnership agreement when you start up a partnership; however this is strongly recommended for the reasons below.

Don’t – carry on a partnership without drawing up a partnership agreement. If you do not have your own partnership agreement drawn up, the way the law works means that the Partnership Act  will automatically apply to your partnership. Having a solicitor draft a partnership agreement for you is crucial as this will override the automatic Partnership Act.

Allowing the Partnership Act to be automatically applied to your business means instability for your business. Without a specific partnership agreement the following will apply to your business:

  • Your profits will be shared 50/50 regardless of your financial input
  • All the partners will be legally allowed to participate in managing the business
  • All your partnership decisions will be made by a majority vote
  • Any one partner may end your partnership at any time with immediate effect
  • Your partnership will automatically end if any partner dies or is made bankrupt
  • You will not be eligible to retire from the partnership
  • Any partner can only be terminated from the partnership if all partners, including the one you wish to terminate consent to the termination
  • Any partner will be free to compete as your business will not be protected by any confidentiality or restraint of trade clause

You can now see why it is so vital to get a specialist solicitor to create a partnership agreement for you.

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