What is a partnership agreement?

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It’s been recommended by my financial advisor that upon forming our new LLP, we should draft a partnership agreement. Could a few of you explain to me what exactly a partnership agreement actually is? Thank you.

Answers

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A partnership agreement is a private agreement that is drawn up between the members of an LLP. It outlines in detail the relationship between the LLP and its members and between the members themselves, thus serving as the LLPs constitution and protecting everyone’s interests. The members can create an agreement themselves but it is often better to enlist the help of a solicitor.

Partnership agreements are entirely optional so they do not have to be registered at Companies House or disclosed on public record. Whilst an agreement is not legally essential, it is really important to have one to ensure that all members are aware of their duties, responsibilities and rights, as well as the way the LLP itself should be run.

The main areas covered by a partnership agreement usually include:

  • The objectives of the business
  • The names of the members and which members are designated
  • The law under which the LLP is governed
  • Definition of the members’ rights and obligations
  • Classification of each member’s financial contribution and stake in the LLP
  • The requirements and procedure for appointing new members
  • How and when profit is distributed
  • Rules for withdrawing money from the business
  • How losses are dealt with
  • The requirements and procedure for members’ meetings and decision making
  • Dispute resolution protocol
  • What happens when a member leaves the LLP or dies

An LLP agreement can be changed at any time if all of the partners are in agreement. It is good practice to regularly review the agreement to ensure it remains current and effective.

You can take a look at a LLP agreement template here.

a year ago
 

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