Partnerships are akin to
marriages, when things are going well there are likely to be no complaints.
However, when things do not live up to a partner’s expectations, business
tensions can arise; often resulting in ugly and expensive divorce proceedings
for the partnership.
Partnerships which are formed
without a written agreement are partnerships at will and are governed by the
Partnership Act 1890.
This means they are regulated by
the default provisions of the Act and may find themselves being bound by
provisions which they had no intention of having. By way of example, under the
Partnership Act all partners are entitled to a share of the profits and debts
of the partnership equally; irrelevant of the level of contribution a partner
has made to the partnership. Partners may also be jointly and severally liable
towards third parties in respect of partnership liabilities.
However these points can be
addressed in a bespoke partnership agreement in ways that are specific to the
parties needs. For example if one partner is to receive 30% of the profit share
that can be expressly drafted into the partnership agreement.
A partnership at will is such
that upon a partner leaving or even where a new partner seeks to join, the
entire partnership automatically dissolves in law. Whereas, a dissolution in a
partnership which has a written agreement would only occur where; it has been
ordered by the court or arbitrator or where all the partners agree to have the
partnership dissolved.
ADVICE
Time and money spent on having a
formal partnership tailored to a specific partnership is more beneficial. This
is because it would take consider; the various needs of its partners, as well
as providing solutions to those often-tricky questions or disputes. Thus on any
analysis, can only be viewed as an investment.
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