FAQs

A partnership agreement is a contract between partners that sets out how a business will be run, including each partner’s rights and responsibilities.

If there is no written agreement, the Partnership Act 1890 will apply by default, which may not reflect what the partners actually intended.

In practice:
If two individuals start a business without an agreement, profits are automatically shared equally under the law—even if one partner invested significantly more time or money.

A written agreement helps:

• Prevent misunderstandings
• Clearly allocate profits and responsibilities
• Set out how decisions are made
• Provide a framework for resolving disputes

In practice:
Without an agreement, disagreements about workload or profit-sharing can quickly escalate, potentially damaging both the business and personal relationships.

Typical provisions include:

• Profit and loss sharing arrangements
• Roles and responsibilities of each partner
• Decision-making processes
• Capital contributions
• Admission or exit of partners
• Dispute resolution mechanisms

In practice:
A clear clause on decision-making can prevent deadlock—for example, specifying that certain decisions require unanimous approval while others can be made by majority.

The agreement should set out the process for a partner exiting, including:

• Notice requirements
• How their share will be valued
• Whether remaining partners can buy out their interest

In practice:
If one partner decides to retire, a well-drafted agreement will allow the remaining partners to continue the business smoothly and pay a fair value for the departing partner’s share.

Yes. In a general partnership, partners usually have unlimited personal liability for the debts and obligations of the business.

In practice:
If the business cannot pay its debts, creditors can pursue the personal assets of the partners (e.g. savings or property), making it essential to understand and manage this risk.