Like a shareholders agreement for a company, drawing up a partnership agreement helps the partners think through key issues such as how the partnership will be run and what you are trying to achieve. By doing this you reduce the risk of disputes later on.
If you do not have a written partnership agreement, all the partners will normally be treated equally. This means that each partner will be entitled to an equal share of the partnership profits and an equal say in management. There can be a number of problem areas:
- New partners can only be brought in if all the partners agree.
- Any partner can decide to dissolve the partnership. The partnership also comes to an end if any partner dies or goes bankrupt.
- It can be difficult to agree how much any partner who leaves the partnership is entitled to be paid.