How to create a partnership agreement that works for you

A written partnership agreement isn’t legally required – but it can help to protect your business. Without one, outdated default laws will control your partnership. Creating a custom agreement lets you clearly define financial contributions, daily responsibilities, and profit splits to prevent future conflicts. Here’s how to make your own.

If you’re starting a business partnership, it’s important to have a partnership agreement. This outlines your rights and responsibilities within the arrangement.

A partnership agreement can help you and your partner create a solid legal framework for your business – here’s what to include in one.

Is a business partnership agreement a legal requirement?

You don’t legally need a written partnership agreement in the UK. But without one, your business is automatically governed by the Partnership Act 1890.

This piece of legislation is outdated and can have unintended consequences for your business. For example, under the Act, a partnership is dissolved if any partner gives notice that they want to leave.

What are the benefits of a partnership agreement?

Having a written agreement lets you avoid using default government laws. This means you can set your own rules for things like retirement, liability, and business dissolution.

It also provides clarity on everyone’s responsibilities and financial contributions, which can help to reduce conflict and protect all partners’ assets.

With a partnership agreement	Without a partnership agreement
Clear profit-sharing terms	Default laws dictate profit split
Custom dissolution terms	Partnership Act 1890 applies
Defined partner responsibilities	Potential for disputes

How does a partnership agreement affect my taxes?

While the agreement itself isn’t a legal requirement, you’ll still need to register your partnership with HMRC. You need to do this for your tax records and annual Self Assessment tax return through Making Tax Digital.

Remember that in Scotland, partnerships are treated as separate legal entities from their owners.

What should I include in a partnership agreement?

A partnership agreement sets out the terms and conditions for a business partnership. It’s up to you and your business partner to define the scope of the agreement.

But as a guide, you can find the following in our business partnership agreement example:

Definition of terms: Defines key terms to make sure everyone understands the document.
Details of the partnership: The start date and the name of the partnership.
Capital: Deals with the money used in the business, including initial costs and who owns what percentage.
Management: Lays out how you’ll make decisions, like changing the business name or location.
Accounting and banking: Covers when and how you’ll keep financial records and manage the business bank account.
Profits and losses: Explains how you’ll divide profits and losses between the partners.
Drawings: Covers when and how partners can withdraw money from the business.
Partners’ duties: Outlines the tasks that all partners are legally required to carry out.
Restrictions: Lists activities you can’t do without written consent from the other partners. This might include lending money that belongs to the partnership.
Dissolution: Specifies the conditions that would cause the partnership to end.
No assignment: States that the benefits of the agreement can’t be transferred by either partner.
Schedule: Sets out the names of the partners, their financial contributions, and their share of profits.

You can add extra sections or remove any that don’t apply to your business. It’s always best to get legal advice before you sign anything.

Did you know? Without a written agreement, the Partnership Act 1890 governs your business by default. This outdated law can lead to unintended consequences – such as automatic dissolution if a partner decides to leave. A custom partnership agreement lets you set modern, tailored rules for your partnership.

Business partnership not the right fit for you? Why not explore the benefits of being a sole trader or a limited company.

FAQs: partnership agreements

What is a partnership agreement?

A partnership agreement is a legally binding contract between two or more business partners. It outlines how your partnership will operate, including each partner’s responsibilities, ownership shares, financial contributions, and steps to resolve disputes.

What happens if you don’t have a partnership agreement?

If you run a partnership in the UK without a written agreement, the default rules under the Partnership Act 1890 will apply. These rules typically split profits, losses, and decision-making equally among all partners – regardless of individual contributions. This may not reflect the actual financial or operational arrangement between partners.

Do I need a partnership agreement if I’m a sole trader with a partner?

Yes. If you work with another person to run a business and share its profits, you are classified as a partnership, not a sole trader. A partnership agreement is essential to protect each partner’s rights and clearly define financial stakes and responsibilities.

How do partners split profits in a partnership agreement?

Partners can divide profits however they agree – as long as it’s set out in the partnership agreement. The split can be based on equal shares, initial contributions, ownership percentages, or business responsibilities.

How do I end a partnership agreement in the UK?

To end a partnership in the UK, you must follow the dissolution terms outlined in your agreement. This usually involves:

holding a formal vote with your partners
paying off all outstanding partnership debts
distributing any remaining assets
informing HMRC of the partnership’s closure and filing any required tax returns
deregistering for VAT (if applicable)

Can you create your own partnership agreement?

Yes, you can draft your own agreement using templates or online tools. However, as this is a legally binding document, it’s strongly recommended to consult a legal professional to make sure your agreement complies with UK law.

How much does a partnership agreement cost in the UK?

The cost of a partnership agreement depends on how you create it. Online templates are generally free or low cost, while hiring a solicitor to draft or review a customised agreement typically costs between £500 and £2,000, depending on the complexity of your partnership.

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