Whether you’re starting a joint venture or in a long-standing Partnership, being certain of the security of your business’ future should be a priority.
Here at Wollens we don’t hear enough questions on this, rather statements that partnerships are ‘secure’ through mutual trust and verbal agreement. But of course, its not until something goes wrong, Business Partners die, retire or fall out, that the risk really becomes apparent.
What happens if my Business Partner(s) dies, retires or becomes incapacitated?
Regardless of the duration of time you have been in business, should your Partnership not be formalised in written agreement and for any reason a Partner becomes vacant, the Partnership will cease to exist. Each Partner can depart with the assets and/or monies of the Partnership held in their sole name and there is nothing immediate to stop them doing so.
Specifically, if your Business Partner dies and a Partnership Agreement is not in place, the assets in their sole name will become probate property and fall under ownership of the party specified in their Will. Without prior arrangement, you will have no right to repossess this property and its new owner can do with it as they wish.
What if I fall out with my Business Partner?
As with death or retirement, if you and your Business Partner disagree and go your separate ways, without having a Partnership Agreement there is no legal structure in place to ensure the parting is fair. This can lead to lengthy disputes later down the line, which have a limited success rate due to the lack of formality in the business arrangement.
When producing a formal agreement, it is advisable to insert a term referring to how the Partner’s may go about dissolving the Partnership should either of them wish to leave. This can breakdown any rights each Partner has to use of property, tools and facilities, and now profits to date are to be divided.
How can having a Partnership Agreement help me?
A Partnership Agreement is a contractual arrangement between Partners of the business which provides clarity of the working relationship and terms on which the business will be structured, transferred and/or dissolved. It is highly recommended in all Business Partnerships that a formal agreement is prepared and approved from the outset to provide certainty in changes of circumstance.
How we can help
We know that every business is different, and therefore, Partnership Agreements are drafted in a way that is bespoke to the needs of you and your business. This can include how profits are split, how debt is repaid, what happens to the business’ assets upon death/retirement and more.
If you wish to discuss introducing a Partnership Agreement for your business, please get in touch with one of our specialists.
Call Ellie Temple, Trainee Commercial Solicitor, on 01803 396608
Email [email protected]