Business partnership agreement UK: what to include and what to avoid
Starting a business with a partner without a written partnership agreement is one of the most common and most costly legal mistakes in UK business. In the absence of a written agreement, the Partnership Act 1890 governs your relationship — and its default rules may be nothing like what you agreed in conversation.
Under the Partnership Act, profits are split equally regardless of contribution. Any partner can bind the firm to contracts. Disagreements about the direction of the business have no default resolution mechanism. A partner can dissolve the partnership at will.
A written partnership agreement replaces these defaults with terms you have actually agreed.
Profit and loss sharing
Your agreement should specify how profits and losses are shared between partners. This does not have to be equal — it can reflect different capital contributions, different roles, or different time commitments — but it must be explicit.
Specify when profits can be drawn and in what form. Can partners draw a salary before profit is calculated? Are drawings against future profits permitted? What happens to retained profits?
Decision making and authority
Clarify which decisions require unanimous agreement and which can be made by a majority or by individual partners within their area of responsibility. Day-to-day operational decisions are typically delegated to individual partners; major decisions — taking on significant debt, entering new markets, adding a partner — typically require consensus.
Specify which partners have authority to enter contracts and up to what value. Without this, any partner can legally bind the firm to any contract.
Capital contributions
Record what each partner is contributing to the business — cash, assets, intellectual property, existing relationships — and what return, if any, they are entitled to on that contribution before profits are divided.
Specify what happens if the business needs additional capital. Are partners obliged to contribute? Can they be diluted?
Partner exits
This is where most partnership disputes arise, and where the agreement must be most detailed.
What happens if a partner wants to leave? Can they sell their share to an outsider, or do the remaining partners have a right of first refusal? How is the departing partner's share valued?
What happens if a partner dies or becomes incapacitated? Does their share pass to their estate, or do the remaining partners have the right to buy it out?
What are the grounds for expelling a partner, and what process must be followed?
Post-exit restrictions
Consider whether departing partners should be restricted from competing with the business or soliciting its clients or staff. If so, specify the duration and scope of these restrictions.
Dispute resolution
Disputes between partners can destroy businesses. Include a process for resolving disagreements — escalation to a mediator before litigation, for example — and a mechanism for breaking deadlocks.
Getting your partnership agreement reviewed
If a partner has drafted an agreement for you to sign, PaperSafe reviews it in plain English, identifying provisions that may not reflect what you agreed or that put you at a disadvantage. Upload your PDF and receive a complete review in under 2 minutes for £49.
Ready to review your contract?
Upload any contract and receive a plain-English review in under 2 minutes. Risky clauses flagged. Missing protections identified. £49.
Review my contract — £49 →