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Published on 12-Aug-12 12:45
By Gavin Tosh

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Why have a Shareholder Agreement? Part 5
Published on 11-Jun-12 13:15
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Home » Awareness » Growing the business » Partnerships


A Partnership is one kind of formal contractual relationship often adopted by businesses, the other  common ones being a Limited Company and now a Limited Liability Partnership (LLP). It is possible to have a legal Partnership with nothing in writing, however this is a high risk strategy. For example if a partner wishes to bring the partnership to an end, then that can be done on very short notice – a matter of hours or perhaps even less. Then the winding up of the business would be conducted, with all the assets of the partnership (including for example, the name of the business and its intellectual property) realised and creditors paid before distribution of any remaining surplus is made to the partners. Without a written Partnership Agreement, this can become a fraught process, with for example individual partners attempting to hijack customer lists and contacts and even the name of the partnership.

Instead it is well worth sitting down with the other partner(s) at the outset and drawing up a Partnership Agreement to set out the agreed position on issues which if not addressed and agreed up front and put into writing might lead to arguments and difficulties later on. A Partnership Agreement will try to address much of what is found, in the case of a limited company, within articles of association and shareholder agreements. Examples of the important issues which could be addressed in the Agreement include:-

  • Who put what into the business
  • How the profits (and losses) are to be shared
  • Expenses
  • Drawings – how much they are allowed to withdraw from the business each month
  • Partnership property
  • Holidays
  • Admissions of new partners
  • Resignation and any restrictions on the activities of a partner who leaves
  • Grounds for expulsion/dissolution of the partnership
  • How disputes will be resolved

Nothing in this awareness article is intended as legal advice. If you have a specific legal requirement or query you should consult a solicitor directly.