PART 3

December 2011

THE PARTNERSHIP AGREEMENT 

53.54 Partnership agreement

A partnership agreement will set the rules by which internal business of the partnership is to be conducted.  It cannot set any rules relating to the partnership’s relationship with third parties.

In most cases the formation of a partnership will be an intentional act on the part of the partners (see Part 1 for guidance on establishing whether a partnership exists where there is doubt), but that does not mean that there will be a written partnership agreement – in partnerships encountered by the official receiver the existence of a written agreement is likely to be the exception.

53.55 Official receiver to obtain copy of partnership agreement

Where a partnership agreement exists it is important that the official receiver obtains a copy to ascertain the terms of agreement between the partners.

53.56 Oral partnership agreement

A partnership agreement need not be in writing to be effective and, depending on the actions of the partners, any written agreement may have been superseded by a later oral agreement [note 1]. 

53.57 Absence in part or full of a partnership agreement

Where there is no partnership agreement, or where a matter is not covered by the partnership agreement, the rules by which the internal business of the partnership is to be conducted are laid out in the legislation [note 2].  These rules would be applied in the absence of any express or implied (by action) exclusion in the agreement [note 3].

It is, in fact, unlikely that any partnership agreement will cover all matters that could potentially arise in relation to the business of a partnership and may need to be supplemented by statute or case law [note 4].

53.58 Form of the agreement

A partnership agreement need only be a contract/agreement signed by the parties (sometimes referred to as a simple contract ‘under hand’) unless there is some part of the agreement that relates to the transfer of property, in which case the agreement must take the form of a deed [note 5].  The agreement may even take the form of a signed draft or outline of the intend final version [note 6].

Despite this, many partnership agreements will take the form of a deed [note 7].

53.59 Variation of the terms of the agreement

The terms of the agreement may be varied by unanimous agreement of the members of the partnership.  That agreement to vary the terms may be express or implied (by their actions) [note 8] [note 9].

53.60 Areas usually covered by an agreement

Whilst there is no such thing as a ‘standard’ partnership agreement, one will typically cover some or all of the following: 

• The partners and their roles
• The nature of the partnership’s business
• The commencement date of the partnership (which may be in the past)
• The duration of the partnership (which may be for a fixed term, a single venture or an undefined term).
• The name under which the partnership will trade (usually known as the ‘firm name’).
• The premises used by the partnership (including the rights of occupation where the premises are owned by only some of the partners).
• The partnership property.
• The sharing of profits and losses.
• The arrangements for drawings.
• The position regarding goodwill
• The banking arrangement of the partnership
• The maintenance of the books and papers of the partnership.
• The powers and duties of the partners.
• How decisions are to be made
• Admitting a new partner.
• The capital contributions of the partners To what extent partners can retire from, or be removed from, the partnership.
• The entitlements (particularly, financial entitlements) of outgoing partners.
• The extent to which ex-partners may compete (a restraint of trade clause).
• Dissolution of the partnership.
• The winding-up of the partnership.
• Generally, business specific matters.

53.61 Consideration in agreement

The partnership agreement must be supported by consideration by the partners to give effect.  This may be capital (see paragraph 53.30), skill [note 10] or may be the incurring of a liability [note 11].

53.62 Actions for specific performance of a partnership agreement

Where two parties have agreed to go into partnership and one party refuses to abide with the agreement, the court will not compel that person to comply with the agreement, but the other party would have an action for damages against the refusor [note12].

[Back to Part 2 – Limited partnerships] [On to Part 4 – Partners]