Checklist for contents of a partnership agreement

Note for readers of this website page:  Not all of the contents of this checklist are likely to be fully understood by persons not legally trained. It is intended that in due course, these items will contain links to pages with further information.  In the meantime, we hope that this checklist will at least help to stimulate some thought by a reader about what they want in a partnership agreement.

Formal information

1. The names and addresses of the parties
2. The name or style of the firm
3. Date of commencement of the partnership and term (if applicable) (but see 26 below)

Regulation of the partnership

4. Where the business is to be carried on
5. Name and address of firm’s bankers
6. Who is entitled to sign cheques, whether cheques can be signed for more than a certain amount without two signatuires.
7. The capital of the partnership, and what shares that capital is provided in.
8. The division of profits and losses
9. Details of any business assets where title is not in the name of all partners, to be stated to be held on trust for the partnership
10. Drawings limits of partners.
11. The accounting date of the partnership.
12. A statement that accounts signed by the partners shall be conclusive and binding.
13. Whether a separate account should be held for discharging tax liability and how that account is regulated.

Clauses relating to good faith

14. Covenant by each partner to devote whole time and attention to the partnership business.
15. Covenant by each partner to punctually discharge their separate debts and indemnify other partner against proceedings and costs in respect of them.
16. Be just and faithful to the other partner in all dealings

Covenants not without the consent of the other partner:

17. to be engaged or concerned in any other business of occupation.
18. to engage or dismiss any employee
19. to enter into any dealings as a result of which the partners may risk loss of more than £
20. to forgive a debt of the whole or any part due to the business
21. exceopt in the ordinary course of business to dispose by loan, pledge sale or otherwise dispose of partnership property
22. become bail guarantor or surety for any person as a result of which partnership property may be endangered.
23. assign or charge his interest in the firm
24. draw or accept or endorse a bill of exchange (usually a cheque) on account of the partnership (See also 6 above)

NB appropriate clauses for control of client account money such as in Solicitors practices.

25. How much holiday can each partner have and when can it be taken?

Termination of the Partnership

(NB this section should be considered together with consideration of insurance)

26. How much notice should there be for retirement? (retirement means literally leaving the partnership)
27. Define events which terminate partnership (NB (b), (c), and (d) operate by law to do this in any event)

(a) Retirement
(b) Bankruptcy
(c) Mental Health
(d) Death
(e) Expulsion as a result of conduct (this should be defined to include matters such as alcoholism, drug addiction, behaviour designed to damage the business) or critical illness or physical incapacity.  With professional partnerships consider including breaches of codes of professional conduct as well findings by a professional disciplinary tribunal.

NB  Client should be advised that the implementation of any expulsion clause should never be taken without prior legal advice, particularly since a legal dispute following expulsion would usually be expected.

28. Option for surviving partner to carry on business – notice clause to be exercised within a certain time

29. Mechanisms to determine price paid by remaining partner to outgoing partner or his estate-

Valuation of credit in his capital account
Further capital introduced
Valuation of stock at the date of event
Value of land and buildings
Value of goodwill
Value of profits from event to accounting date
Drawings

How are bad debts dealt with?

Provision of payment by instalments
What interest rates are payable on delayed payments.

Payment of whole price if remaining partner falls foul of instalment programme?

Income tax election
Preparation of final accounts
Pension arrangements for retired partners or spouse of deceased partner – Annuity in lieu of goodwill sale ? And see below

Would retiring partner be retained as a consultant – if so, would terms be incorporated into the agreement?

Contingency expenses for termination in the case of death, illness and retirement

30. Pension Arrangements – are they a business expense? NB for tax purposes, only part of it may be regarded as a business expense.

Payment of premiums by partners?

31. Life and critical illness cover – Are these payable by the partnership as an expense or should the partners be obliged to have separate cover?  Who gets the benefit of the policy – In the case of life cover, should be for benefit of surviving partner to pay off debt to deceased partner’s estate. 

Arbitration clauses

32. Arbiter for accounting disputes / all other disputes 
33. Arbitration Act to apply?

New Partners 

34. Clauses to cover introduction of a new partner in the future (e.g. son of one of existing partners

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Related Topics

Partnership