Partnership agreement

What’s a partnership agreement and when should you use it?

Partnership is often called the most unstable ship that ever sailed.

That’s because when partners initially go into business, they are motivated and happy to embark on this exciting new adventure together.

They assume nothing can go wrong.

The reality is, however, that A LOT can go wrong and often does.

That’s why a partnership agreement is important; to set out in detail what partners may or may not do and to manage expectations and give each partner confidence about the future of the business.

The purpose of our partnership agreement is to protect your investment in the business, govern how the business will be managed, clearly define the rights and obligations of the partners and determine the rules of engagement should a disagreement arise.

This is a comprehensive partnership agreement that you can adapt to suit almost any business that you want to run as a general partnership.

It is not appropriate for a limited liability partnership model.

If you want to set up a limited liability partnership you’ll find our template for that here

When do you need a partnership agreement?

The ideal time for partners to enter a partnership agreement is when the business is formed.

This the best time to ensure that you share a common understanding of your expectations of each other and the business.

The longer the partners wait to draft the agreement, the more opinions will diverge on how the business should be run and who is responsible for what.

You should consider a partnership agreement in the following circumstances:

• When two or more people start a new business or project together
• When existing partners want to formalise their partnership agreement
• When existing partners want to change the balance of control and ownership of the business.

Make sure you clarify the position on what each partner is committing to the partnership, not just in terms of role and responsibility, but also whether for example, a partner is going to license the partnership to use intellectual property (IP) that the partner owns and does not want to transfer wholly into the partnership.

Take a look at our guide on how to set up as a partnership (coming soon) for more information.

If you want to establish a limited liability partnership, you’ll need our separate guide on that business model instead (coming soon).

You can find our limited liability partnership template here