This section includes different types of Partnership Agreement template documents. The two most popular are shown in this box.
See below for further information, related documents and regional variations.
|Partnership Agreement (England and Wales)||£16.95 inc VAT||Buy Now|
|LLP Agreement (England and Wales)||£23.94 inc VAT||Buy Now|
A partnership is a type of business structure where two or more individuals agree to carry on a business, trade or other activity together and share the profits and losses between them. There are two main types of partnership:
A partnership is often referred to as a 'firm' and the name of the partnership as the 'firm name'.
The legal status of a traditional partnership is similar to that of a sole trader and is a simple and flexible way to run a business. Partnerships are not registered at Companies House nor do they have any obligations to maintain statutory records, prepare and file accounts or submit annual returns. Of course, a partnership will still need to maintain adequate records to function effectively and meet their tax obligation.
The partners decide how they want to run the business. Typically, partners in a partnership share the responsibilities and profits and losses equally but there is no law which states that partnerships must be run in this manner. The partners are self-employed and each of the partner's business income is counted alongside their existing personal income, so the accounting side of the partnership is relatively straightforward.
Unlike shareholders in a limited company or partners in a limited liability partnership, the members of a traditional partnership have no financial protection if the business runs into trouble. If the partnership has debts, the partners are jointly liable for any amounts owed and so are equally responsible for paying off the whole debt. Creditors can claim a partner's personal assets (home, money etc) to pay off any debts - even those debts caused by other partners.
Partnerships can be particularly useful for small businesses run by couples. In fact, if an unmarried couple run a business together then setting the business up as a partnership safeguards each partner's interest in the business should their personal relationship end.
As far as taxes go, a partnership is relatively straightforward. Each partner needs to register with the HMRC as self-employed and for self-assessment. The partnership also has to be registered with HMRC and an annual tax return filed. Profits from the partnership are taxed as income, as per sole traders. Unlike sole traders, however, the partners and the partnership each have to be registered for National Insurance and pay NICs. If the partnership generates sufficient income a limited liability company may be more tax efficient.
This kind of partnership model is common among firms of solicitors, surveyors and accountants although more and more practices within these professions are converting to or starting up LLPs.
An LLP is an alternative partnership structure with the benefits of limited liability. Two or more people associated for carrying on a lawful business with a view to profit can incorporate an LLP by subscribing to its incorporation document. In law, 'person' includes individuals and companies or firms. LLPs are not applicable for all activities, for example, non-profit making activities. Any new or existing partnership of two or more persons can incorporate as an LLP.
The main difference between an LLP and a limited company is that an LLP has the organisational flexibility of a traditional partnership as opposed to the more rigid structure of a company and is taxed as a partnership.
The LLP is a separate legal entity and, while the LLP itself is liable for the full extent of its assets, the liability of the members is limited. This is much safer for the partners, as they are not personally liable for any losses.
On the other hand, an LLP requires:
In short, a limited liability partnership is a more formal arrangement than a partnership due to the requirements of Companies House but it does offer partners the protection of limited liability while retaining the taxation benefits of a partnership. It's relatively straightforward to convert an existing business partnership to a limited liability partnership.
In general, the LLP seems a better option for most businesses unless you are particularly confident about the risks (of losses or claims) of a traditional partnership or have reservations about revealing your accounts to the public (where your customers and competitors can inspect them).
Whatever type of partnership model you choose, it's important to have a partnership agreement (also referred to as a 'partnership deed' or a 'deed of partnership') which allows you to structure your business. A partnership deed is a legally binding agreement between partners who are in business together which formalises the partnership. It sets out the rights and responsibilities of the partners and describes how the partnership will be run.
Although a written agreement is not required by law to form a partnership, it is vital to avoid uncertainty and to prevent misunderstandings and disputes. Without a partnership deed the actions, powers and rights of each partner are controlled by the Partnership Act 1890. This does not offer solutions to many of the problems that can arise and may not suit the way that you and your partners want to work together. The Act is quite arbitrary and the provisions may not always seem fair. For example, the Partnership Act 1890 states that partners are entitled to share equally in the capital and profits of the business. But, if one partner has put more time or capital into the business than the other(s), you probably wouldn't want to share profits equally.
Also under this Act, a partner can withdraw immediately, without giving notice. This could be awkward because they may insist on the return of their capital contribution, which may force the business to close down. This is why a written agreement is so important.
The partnership deed contains information about the partnership such as:
Many partnership agreements do not have a fixed duration but state that the partnership will commence on a certain date and will subsist until dissolved in accordance with the agreement.
In addition to the above information, the deed should also set out:
We supply templates for either type of partnership: a traditional Partnership or an LLP, (for England and Wales, and for Scotland) as well as special purpose partnership documents (see menu panel on left).
A business partnership is usually created for business relationships of a long-term nature. For people who want to work with a company or individual on a short term basis then a consultancy agreement may be more appropriate. If you are looking for a "partnership" between businesses, then maybe you really want our Joint Venture Agreement.
Links to online samples of the different types of partnership templates we offer can be found on the individual pages in this section.
These partnership documents are available individually, as part of our Business Annual Subscription (£99 own use) or as part of a Full Annual Subscription (£199 own use). These subscriptions give you access to wide range of documents, packages and forms for a single annual discounted fee.