Business Partnership Agreement (2 Partners)

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Solicitor-drafted business partnership agreement template. Download form with expert guidance notes.

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Business Partnership Agreement (4/5 Partners)

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Solicitor-approved Business Partnership Agreement for four or five partners.

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Business Partnership Agreement (3 Partners)

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Solicitor-approved Business Partnership Agreement for three partners.




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eForm
Valid in England, Wales
Price: £58.80
Page Length: 22
File Type: Microsoft Word
File Size: 126 KB

This solicitor-approved Business Partnership Agreement can be used for setting up a new business partnership or for formalising an existing business partnership of three partners.

This Business Partnership Agreement, in a "Download Now" Word format, is a contract between individuals starting a business partnership setting out:

  • Partnership capital
  • Profits and losses
  • Drawings by each of the three business partners
  • Conduct of the business partnership
  • Decision-making between the three business partners
  • What happens if there is a dispute or deadlock among the three business partners

This business partnership agreement includes 24 clauses, which cover the following:

  • Business accounts
  • Holidays
  • Insurance
  • Retirement of a business partner
  • Expulsion of a business partner
  • The consequences of termination and dissolution of the business partnership agreement
  • Restrictions on the three business partners

Drafted by solicitors for straightforward completion, the “Download Now” Business Partnership Agreement (for Three Parties) includes detailed guidance notes on how to fill the business partnership agreement in.

For further details of the terms included in this Business Partnership Agreement (for Three Business Partners), see the ‘Contents’ tab above.

Business Partnership Agreement (for Three Parties) Note:

This Business Partnership Agreement is supplied by ContractStore.com.

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For obvious reasons we can't show you the actual business partnership agreement before you purchase it, but outlined below are the explanatory notes that go with it. These explain the thinking behind it, and should give you a good idea of the terms of the Business Partnership Agreement.

Explanatory Notes

Business Partnership Agreement (Three Business Partners)



This Business Partnership Agreement is governed by English law.

General Introduction to Business Partnerships

Under the English Partnership Act 1890 ("PA") business partnership is defined as "the relation which subsists between persons carrying on a business in common with a view to profit". There are no specific legal requirements that govern the formation of a business partnership. The PA governs the relationship unless there is a Business Partnership Agreement.

Business partnership is a private matter and there is no public register that contains any information concerning business partnerships. (This is not true of limited liability partnerships which were introduced in 2002 in the UK).

The Legal Status of Business Partnerships

A business partnership does not have a separate legal personality apart from its members in a way that a limited company does. As a consequence, the business partners are jointly and severally liable for the obligations of the business partnership, i.e. each business partner can be sued for the full amount of any liability of the business partnership. There is no limit on liability.

The Duties of Business Partners

These arise from the Business Partnership Agreement, where there is one. In addition, business partners are both agents of the firm and their other business partners. They also have a fiduciary relationship to each other (e.g. a duty to account and disclose information concerning their activities in relation to the business partnership).

The Authority of Business Partners

Each business partner has the power to bind his/her business partners and make them liable on business transactions which are carried out in the name of the business partnership. (This power can be limited internally but if the internal agreement is breached, the business partnership might still have a liability to a third party who entered into a contract in the belief that s/he was contracting with the business partnership).

Why You Need a Business Partnership Agreement

The answer to this is that without it, there can be uncertainties as to the relationship between the business partners and how the business partnership should be run. For example, in the absence of a business partnership, on the death of a business partner, the business partnership has to be dissolved. This might not be in the interests of the surviving business partners who wish to keep the business partnership going.

Similarly, in the absence of any Business Partnership Agreement to the contrary, the business partners have the right to share equally in the capital and profits of the business.

Problems which can be encountered with the general law can be avoided by a properly drafted Business Partnership Agreement, which can set out clear rules concerning such matters as capital and profit shares, drawings on account of profit, management and decision making, permitted business partnership expenses, retirement and expulsion or death of a business partner (and the financial consequences of retirement, death or expulsion).

Clauses in this Business Partnership Agreement Download

Introduction

The introductory clause in the Business Partnership Agreement can be amended, depending on whether you are setting up a new business or whether the business partnership already exists but there is not yet any formal Business Partnership Agreement in place.

Definitions

This section of the Business Partnership Agreement includes the following:

  1. The date to which the annual accounts are made up, and a brief description of the business.
  2. The rate of interest payable on business partnership capital by the business partnership to the individual business partners. Since business partners frequently raise capital by borrowing from a bank, it is usual for the interest rate under a Business Partnership Agreement to be slightly more than the rate which each business partner has to pay to his/her bank.

The name of the bank to be included in the definition of interest rate will usually be a bank with which the business partnership has an account.

Establishment of the Business Partnership

This clause in the Business Partnership Agreement simply states the date on which the business partnership comes into effect. If it already exists, then the effective date of the Business Partnership Agreement will be inserted as per the second alternative.

Name of Principal Office and Property

This section of the Business Partnership Agreement includes the name of the business partnership and the address of the head office. It makes it clear that the premises of the business partnership (the "Property") and office furniture and equipment are held by the business partnership. Where the business partnership's premises or furniture/equipment are held in the name of one business partner it is made clear that the business partner holds that property in trust for the business partnership.

Capital

This section of the Business Partnership Agreement outlines the amount of capital each business partner has to contribute to the business partnership. The percentage contribution of each business partner is also shown, since this can be relevant if percentages are used in relation to voting rights.

It also makes it clear that any additional capital is to be contributed in the same proportions as the initial capital.

It also deals with the entitlement of the business partners to receive interest on their respective shares of capital.

Profits and Losses

It is usual for profits and losses to be shared in the same proportions as the capital contributions, but this is not always the case. This section of the Business Partnership Agreement includes the percentage share of each business partner.

If there are any expenses which business partners might incur but which are not to be treated as expenses of the business partnership, then this section of the Business Partnership Agreement can be amended accordingly.

Drawings

It is usual for business partnerships to arrange that each business partner can withdraw a regular monthly amount on account of his/her share of profits similar to a monthly salary. This section of the Business Partnership Agreement deals with this matter, and makes it clear that if there is not enough money in the account, drawings cannot be taken. Similarly, any business partner who withdraws more than his/her profit share for a year must immediately repay the surplus - with interest, if required.

Often, but not always, a business partnership will retain part of its profits to meet the anticipated income tax liabilities of each business partner and arrange for the business partnership's accountant to settle income tax liabilities with the Revenue & Customs. This section of the Business Partnership Agreement provides that where the tax liability of an individual business partner is less than anticipated the balance of any sum reserved is to be returned to that business partner. Similarly, where a tax rebate is received by a business partner in respect of business partnership profits s/he is obliged to repay that rebate to the business partnership.

Business Partnership Loans

This section of the Business Partnership Agreement contains a reference to the possibility of one or more business partners making a loan to the business partnership and in that case, interest at the agreed rate will be payable.

This section of the Business Partnership Agreement provides that a loan must be repaid on notice - six months is suggested in this Business Partnership Agreement.

In practice, if any business partner does make a loan to the business partnership, it would be sensible to have a separate loan agreement dealing with these issues in more detail.

Conduct of Partnership Business

This is one of the most important sections of the Business Partnership Agreement as it deals with the day-to-day management of the business partnership, and how decisions are arrived at.

The clauses included in the Business Partnership Agreement outline the following:

  1. The frequency of meetings and who may call a meeting.
  2. A list of matters which require the consent of all the business partners. This list will vary depending on the nature of the business but it is usual for all major decisions, in particular the admission of a new business partner, or any increase in capital, to require the consent of all.
  3. A majority vote is required for all decisions not covered in point 2. The meaning of "majority" could be a numerical majority - i.e. two out of three business partners - or alternatively the "majority" might be at least two business partners who between them have more than 50 per cent of the capital. Under the law, individual business partners have joint and several liability, i.e. a debt incurred on behalf of the business partnership by one business partner can result in any of the business partners becoming liable to the creditor for that debt. Unanimous agreement on all decisions of substance is therefore recommended. If the business partnership decides to delegate some decisions to an individual business partner, it is advisable to require that business partner to report to business partnership meetings, so that all the business partners know what is going on.
  4. The procedures relating to meetings and decision making.
  5. The potential provision for a business partner to appoint another business partner as his/her proxy. But this is not always acceptable, especially in small partnerships.

Good Faith

This clause in the Business Partnership Agreement sets out some general obligations on the business partners.

If any of the business partners is only involved on a part-time basis, or if a business partner has an interest in another business, then appropriate wording should be inserted to make it clear that the particular circumstances are acceptable to the business partnership.

Restriction on Business Partners

Following on from the previous clause, this section of the Business Partnership Agreement imposes a number of specific restrictions on business partners: serious harm can be done to a business if one of the business partners, without any consultation, makes commitments to third parties, and this clause in the Business Partnership Agreement is intended to avoid those risks. This section of the Business Partnership Agreement also requires any business partner who fails to comply to indemnify the other business partners so that they do not suffer loss.

Partnership Bank

Includes the name and address of the bank and the signing arrangements.

Accounts

This clause in the Business Partnership Agreement provides not only for proper accounts to be maintained but also for a balance sheet and profit and loss account to be prepared each year. The firm's external accountants will prepare the annual accounts which will be signed off by the business partners. Adequate provision for reserves, etc. will normally be agreed on the recommendation of the accountants.

Holidays

Relevant details need to be included here.

Insurance

It is important for every business to have adequate insurance in place. The list included in this section of the Business Partnership Agreement is indicative only and it needs to be tailored to your business. For example, professional indemnity insurance will normally only apply where the business partnership is a firm of professional consultants who might become liable for a negligence claim. If the partnership business is manufacturing, product liability insurance may be appropriate.

Note too that the obligation to insure property of the business partnership extends to property held in the name of one business partner in trust for the business partnership.

Retirement, Expulsion and Death

A fairly long notice period, usually at least six months, and sometimes as long as a year, is customary, when a business partner wishes to leave. For accounting reasons, it is helpful for the date of a business partner's retirement to coincide with the date of the end of the accounting year.

A compulsory retirement age is included in this clause in the Business Partnership Agreement. Careful thought needs to be given to the selection of a compulsory retirement age as the business partnership may face a claim for age discrimination. As a general rule, we do not advise opting for a compulsory retirement age under 65.

A business partner who becomes bankrupt, commits a material breach of the Business Partnership Agreement, etc. can be required to leave the business partnership if the other business partners give him/her notice.

Consequences of Retirement, Expulsion or Death

This clause in the Business Partnership Agreement sets out the need for a set of accounts to be prepared when a business partner leaves and the outgoing business partner will be entitled to whatever is shown as being due to him/her in those accounts.

Advice from accountants on the wording of this clause in the Business Partnership Agreement is recommended. While the same accounting principles will be applied to the termination accounts as to the annual accounts, some exceptions might be applicable (e.g. by excluding any valuation for goodwill).

Former Business Partner's Share

Unless the continuing business partners decide to wind up the business, this clause in the Business Partnership Agreement sets out the period within which the outgoing business partner must be paid his/her share of capital.

This clause in the Business Partnership Agreement deals with the outgoing business partner's liability for tax from his/her share of profits and any liability which is due to some fault on his/her part.

Dissolution

If one of the business partners leaves, the others may decide to wind up the business rather than pay for the outgoing business partner's share and this clause in the Business Partnership Agreement covers this eventuality. Note that this Business Partnership Agreement expressly provides that no one business partner may unilaterally dissolve the business partnership.

Restriction of Former Business Partner

It is usual for someone who leaves a business partnership to be restricted from taking business or soliciting customers of his/her former firm. Legal advice should be obtained as a restriction which is too widely drafted may well be unenforceable. By limiting the period of the restriction and confining it to a relevant geographical area can help to ensure its enforceability. It is important to remember that there is no "rule of thumb" as to what will constitute a reasonable and therefore enforceable restriction: this will depend (amongst other factors) on the type of business carried on by the business partnership, its size and the local market for services/goods of a similar type provided by the business partnership.

Notices

The formalities required for giving notice under the Business Partnership Agreement are dealt with here.

Disputes and Governing

This clause in the Business Partnership Agreement provides for a three-stage dispute resolution process - negotiation, mediation (but only if agreed) and, finally, arbitration.

An alternative to arbitration is to refer the dispute to the courts but in the case of a business partnership, litigation between business partners could attract publicity and damage the business - arbitration offers a confidential way of dealing with major disputes.

Entire Business Partnership Agreement

This clause in the Business Partnership Agreement makes it clear that any previous business partnership agreements are of no effect once the Business Partnership Agreement has been signed.

Severability

Includes a "Boilerplate" clause in the Business Partnership Agreement which deals with the possibility of one of the terms becoming invalid for some reason.

Waiver

Includes another "Boilerplate" provision, which makes it clear that if one of the business partners is let off the hook, even if s/he has committed some breach of the Business Partnership Agreement, that will not prevent the other business partners from later taking whatever action is allowed under the Business Partnership Agreement.

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