This may seem an unusual headline.
If you are in a partnership then why wouldn’t you need a partnership agreement… Surely that is common sense?
Well, without giving the game away, if you are in business with other people, then:
Yes, there really should be some agreement in place setting out the rules.
Yes, there will be a cost to get a suitable partnership agreement prepared.
Yes, without an agreement, if something goes wrong, then things can get ugly.
However, it can be pretty dull reading why we should do what we know instinctively know we should.
So our in-house company law expert Spencer Laymond, has turned this subject on its head, to set out and defend seven reasons why you don’t need a partnership agreement.
We are going to release each reason each week, so be sure to stay tuned.
So to kick off with Reason 1 why you don’t need a partnership agreement...
Reason 1 - You and your business partners are immortal
If you and your business partners will never die, will never suffer a serious accident or illness, or will never find themselves incapable of continuing their role in the business (whether through age, mental capacity or otherwise), then as much as you do not need an agreement to live, you may not need a partnership agreement regulating what to do if one of you will die or otherwise be impacted by a serious life event.
Check the law yourself
Under the Partnership Act 1890, section 33(1) provides that a partnership is automatically dissolved on the death of any partner. That is it. Without an agreement, on death of a partner, the business comes to an abrupt end.
But, if the death of a partner is not enough grief and aggravation, the business coming to an end, is a cause set in motion in itself. When a partnership is dissolved, the dissolution means the start of a process of winding up. The process of winding up then is the process disposing of the business, settling accounts with creditors and returning any surplus assets to the partners. At the end of the winding up, what once was the partnership business will be confined to history. Winding up can also give rise to unexpected and adverse legal and tax consequences.
So if you and your business partners are not immortal, the takeaway point is that there can be fatal consequences to the business, if there is no partnership agreement in place. If you need guidance on this subject, get in touch with our team on 020 8363 4444 or complete our online enquiry form.
Next week – Reason 2 – Why You Don’t Need a Partnership Agreement
Don’t forget to tune into next week’s Reason 2 - It is reasonable for any one partner, at any time, to put the business into dissolution?