Partnership Agreements In Detail
Neil Bromage has run his own small business and is a freelance business writer working on a range of newspapers including The Times, Sunday Times, Telegraph and Financial Mail on Sunday. This book is based on a wide range of columns and Q&As written and answered by Neil for Business Link over a number of years. He is based near Preston, Lancs.
Whilst it’s true that some professional partnerships exist with little more than an agreement to pool office expenses this should be considered an exception to the rule. So before starting a business partnership it is essential to have a proper partnership agreement drawn up by a solicitor. It should cover all the following points and any others that may be relevant:
- 1.Who is responsible for particular aspects of the operation (e.g., accounts, marketing, client liaison, etc)?
- 2.What constitutes a policy decision (e.g., whether or not to take on a contract) and how it is taken? By a majority vote, if there is an uneven number of partners? By the partner responsible for the project? Only if all partners agree?
- 3.How are the profits to be divided? According to the amount of capital put in? According to the amount of work done by each partner? Over the whole business done by the partnership over a year? On a job-by-job basis?
- 4.How much money can be drawn in the way of remuneration and on what basis? This should also take account of holiday entitlements.
- 5.Which items, such as cars, not exclusively used for business, can be charged to the partnership and whether there is any limitation on the amount of money involved?
- 6.If one of the partners retires or withdraws, how is his share of the business to be valued? Having planned exit routes makes retirement or sale much easier.
- 7.If work is done in office hours which does not constitute partnership business, who receives the income from that work?
- 8.What arbitration arrangements are there in the event of irreconcilable differences? You may well think that these will not arise, but they do.
- 9.If one of the partners dies, what provision should others make for his or her dependants?