When you start a business with other people, it’s easy to focus on strategy, branding and growth. But if you’re setting up a partnership, one of the first things on your list should be a partnership agreement.

A good partnership agreement doesn’t just sit in a drawer. It gives you the legal and practical foundations you need to actually run the business together.

What is a partnership agreement?

A partnership agreement is a written contract between you and your business partners. It sets out how the partnership works: who does what, how decisions are made, and how money is shared.

Ideally, you put it in place at the start of your business relationship, before any serious disagreements or big financial commitments. There’s no fixed template in law – the agreement can be tailored to your particular business and deal.

Why is a partnership agreement so important?

Even great business partners will disagree sometimes. That’s normal. What causes real damage is when there’s no clear process for resolving those disagreements or making important decisions.

Without an agreement, you can end up with:

• Partners stuck in a stalemate on key issues.
  
• No clear plan if someone wants to leave or reduce their involvement.
  
• Confusion over who is entitled to what share of the profits.
  

Those sorts of disputes can undermine the whole business.

A partnership agreement gives you a shared reference point. When issues crop up, you can look back to what you all signed, rather than arguing about who “remembers” what. It’s a simple way to prevent problems and to deal with them more easily if they do arise.
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What if you don’t have a partnership agreement?

If you’re in a general partnership in the UK and you don’t have a formal agreement, your partnership will default to the rules in the Partnership Act 1890.

These rules are often seen as old and basic. They apply unless you agree to something different in a contract.

For example, under the Act:

• Profits (and losses) are shared equally between partners, regardless of who has put in more money or effort.
  
• Each partner has an equal right to take part in managing the business.
  
• There is no automatic right to expel a partner unless you’ve agreed to one.
  

That might be completely at odds with what you actually intend in your business. A partnership agreement lets you override these defaults and set terms that reflect your real commercial deal.

(This article is about traditional/general partnerships, not LLPs, which are governed by different rules).
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What should a partnership agreement cover?

You can customise your agreement, but most will deal with core points like:

• Partner roles and responsibilities: Who is responsible for what areas of the business.
• Decision-making and authority: What partners can do on their own, and what needs majority or unanimous approval (for example, big spending, loans, or changing the nature of the business).
• Profit and loss sharing: Exactly how profits and losses are divided, especially if it’s not equal.
• Capital and contributions: What each partner puts in, and how capital is treated if someone leaves.
• Retirement and exit: How a partner can leave, how their share is valued, and how and when they’re paid out.
• Expulsion: In what circumstances a partner can be removed, and the process for doing this.
• Death or serious illness: What happens to a partner’s share and how their estate is paid.
• New partners: How new partners join and how they agree to be bound by the existing terms.
  
  
• Dispute resolution: Steps to follow if there is a disagreement (for example, internal discussions, then mediation).

You can also include terms on dissolving the partnership, handling major changes in the business, and any other policies you want to formalise.

A partnership agreement isn’t just legal admin – it’s how you protect your working relationship, avoid falling back on blunt 19th-century default rules, and give your business a stable foundation.

Spending a bit of time getting it right at the start is far easier (and cheaper) than trying to patch things up after a dispute has already begun.

If you’re exploring partnership agreements for your business, Sprintlaw’s expert lawyers can help you navigate your options and stay compliant. As a Crunch business, you’re also eligible for complimentary 12-month access to Sprintlaw’s Plus Membership - including unlimited lawyer consults and other benefits (normally £399/year, now £0 for your first year).

Disclaimer: All content contained in this publication is intended to provide general information in summary form on legal and other topics, current at the time of first publication. The content does not constitute legal (or other) advice and should not be relied upon as such. You should obtain specific legal or other professional advice before relying on any content contained on this website.

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