Partnership Agreement Template UK

Why You Need a Partnership Agreement

Without a written partnership agreement, the Partnership Act 1890 applies by default. This Victorian-era legislation assumes equal profit sharing, equal management rights, and unanimous decision-making — which rarely reflects the reality of modern business partnerships.

• The Partnership Act 1890 defaults apply if you have no written agreement, often with unintended consequences
• Default rules include equal profit sharing regardless of capital contribution or workload
• Any partner can dissolve the partnership at any time under the default rules
• A written agreement overrides the defaults and lets you design the partnership to suit your needs

Key Clauses for Partnership Agreements

A comprehensive partnership agreement addresses capital contributions, profit sharing, decision-making, and what happens when a partner wants to leave. These clauses should be tailored to your specific situation and regularly reviewed as the partnership evolves.

• Capital contributions: how much each partner invests and how this is treated on dissolution
• Profit and loss sharing: the ratio for dividing profits and allocating losses
• Decision making: which decisions need unanimity and which can be made by majority
• Drawings and salaries: how partners withdraw money and whether any partners receive a salary

Dissolution and Exit Provisions

The most important part of a partnership agreement is often what happens when it ends. Without clear exit provisions, a departing partner can trigger dissolution of the entire business, destroy client relationships, and create years of disputes about valuation.

• Define the process for a partner leaving, including notice periods and handover requirements
• Include a valuation mechanism for the departing partner's share — use an agreed formula or independent valuation
• Address restrictive covenants to prevent departing partners from taking clients or staff
• Specify what happens on death or incapacity of a partner, including insurance arrangements

Key Takeaways

• Without a written agreement, the Partnership Act 1890 defaults apply and often produce unfair or unintended outcomes.
• Profit sharing, decision-making authority, and capital contributions must be explicitly agreed and documented.
• Exit and dissolution provisions are the most important clauses — they protect the business when relationships break down.