Setting up a partnership? Put it in writing
We are frequently approached by sole traders, business partners or husband-and-wife teams who decide that they wish to set up in partnership. Often, they have been advised that this is the right thing to do by their accountant. Occasionally, they don’t really know what “being in partnership” means.
The law of partnership in this country derives from the Partnership Act of 1890. I’ll say that again: 1890! This act sets out what partnership is and its effects on individuals. Essentially, any arrangement whereby two or more people act together with a view to making profit will be a partnership.
Now, how much more in our lives has been regulated under the same act of Parliament for over 120 years? Not a lot, which is why we always recommend to clients that they do in fact set out in writing the rules that they want to apply to their partnership. A well-drafted deed of partnership, thought through and negotiated by the partners at the outset, can prevent a lot of uncertainty and potential dispute later. It can override some of the provisions of the Partnership Act and make it clear what the partners are trying to achieve, how they intend to achieve it and in what timescale. The process of thinking about a partnership agreement can also often serve to show differences of opinion between potential partners, which are always better resolved at the outset of a business relationship rather than leaving them to rear up months or years down the line.
A partnership deed can be amended as the partnership develops, and more partners can be added to the partnership and to the deed of agreement.
Of course, a partnership has implications other than just legal for those involved. We always recommend to our clients that they seek detailed tax and accounting advice before entering into a partnership arrangement, as partners and partnership assets need to be both taxed and accounted for differently from sole traders and their assets (or indeed companies and their assets). We have relationships with a number of local accounting and tax advisory firms and are always happy to assist clients in finding an appropriate advisor.
If you are thinking about setting up in partnership, or converting your sole tradership into a partnership with others, please come and see us to discuss your needs – we’d be delighted to assist.
Contact Kathryn Paisley, Solicitor in Rix & Kay’s Corporate Team on 01825 744447 or email firstname.lastname@example.org