THE 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.
Where a partnership agreement exists it is important that the official receiver obtains a copy to ascertain the terms of agreement between the partners.
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not be in writing to be effective and, depending on the actions of the partners, any written agreement may have been superseded by a later oral agreement [note 1].
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].
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].
Whilst there is no such thing as a ‘standard’ partnership agreement, one will typically cover some or all of the following:
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].
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].