Last updated 00:37, Wednesday, 05 March 2008

Deal or no deal: An arrangement between two or more people who go into business together is probably a partnership in law, so a properly drawn up partnership agreement which sets out the rights, responsibilities, and the profit and liability share of each partner is definitely recommended

ACCORDING to figures from the Department for Business, Enterprise and Regulatory Reform last month, there are more than 500,000 businesses in the UK which operate as partnerships rather than as sole traders or companies.

Commonly associated with professional services such as doctors, accountants and solicitors, partnerships are also widely used in farming businesses and even trade unions.

An arrangement between two or more people who go into business together is probably a partnership in law, so a properly drawn up partnership agreement which sets out the rights, responsibilities, and the profit and liability share of each partner is definitely recommended.

It’s also an opportunity to plan what will happen if the working relationship sours and to protect any financial investments which individual partners may have made.

There are still many businesses operating as partnerships, but without reliable, up-to-date documentation to back them up in the event of a dispute.

This not to say partners would be entirely without legal protection, but without a written agreement the powers and rights of each partner are dictated by the Partnership Act 1890.

This 19th century, one-size-fits-all Act could disadvantage some or all of the partners since, under it, all partners are entitled to an equal share of the profits and an equal say in business decisions, regardless of how much cash, property or effort they have put in.

In order to draw up a partnership agreement, you will need to discuss areas such as: initial investments; what will happen when someone dies, retires or leaves for some other reason; and how new partners can join, as well as how profits (and losses) will be divided.

The partnership is one of the oldest business arrangements, but modern partners should not rely on laws made more than a century ago to protect their interests, whatever their industry.

A robust partnership agreement is essential to set out how the partnership will work.

Sam Lyon is a solicitor in Burnetts’ Corporate Law department.

For further details on partnership agreements, contact Sam on 01228 552222 or visit www.burnetts.co.uk