I Am in a Partnership. What Documents Do I Need To Start My Business in England?

If you are part of a business partnership, you must have a well-drafted partnership agreement document. One of the most common ways to start a business relationship between yourself and others without forming a company is through a partnership. Unlike private limited companies, a partnership is a less public business organisation that does not require registration at Companies House. Many individuals prefer partnerships because they do not require disclosing ownership or financial documents. This article will focus on setting out the starting documents you will need to start your partnership, so you can weigh up whether to attempt to do so yourself or through a lawyer.

Creating a Partnership

A partnership is a business relationship based on a written or verbal agreement. Thus, a partnership can technically exist without any written documentation. Another important fact is that a partnership must aim to make a profit. Accordingly, charities and non-profit organisations cannot start partnerships.   

This is important because partners tend to have extensive rights within the business, such as: 

• making crucial business decisions; 
• sharing in business profits; and 
• vetoing the introduction of a new partner.

Necessary Documents

Unlike private companies, there is no need to register documents with Companies House. Instead, you simply need to create documents to confirm key details in writing which, if done correctly, may help avoid future disputes between partners resulting in expensive court battles. In this way, the most important document you will need to record the start of a business partnership is a partnership agreement.

What is a Partnership Agreement?

This is a legally-binding agreement that establishes the business partnership rules. While there is no mandatory content, it is helpful to include:

• the name of the partnership;
• a starting date for the partnership;
• a record of the initial financial investment of each partner;
• the method of sharing profit whether equal amongst each partner or in different shares to different partners;
• whether partners can draw salaries or whether they draw from profit;
• where the partnership is based;
• how critical decisions are made (whether by a unanimous vote or a majority); and
• how often partners can draw profit from the business.

While these sound simple, you must address each point thoroughly and accurately. For example, it is not unusual for the following questions to crop up when attempting a partnership agreement.

Profit Split

Whether profits should be shared equally between partners or whether the longer-serving (or more senior) partners receive more. Additionally, you must consider whether all partners receive the same salary or any salary at all. More senior partners may wish to forego a salary to benefit their tax return from an income tax perspective, whereas other partners may not wish to risk not receiving an income if the business does not make a profit.

Frequency of Drawings

Our law emphasises the importance of a partnership agreement being clear and concise. For example, in a well-known case in 2013, a court clarified that many partnership disputes would avoid court battles if the partnership agreements were better and more clearly drafted.

Key Takeaways

While not a legal requirement, having a written partnership agreement is vital to protecting the partnership’s interests going forward and is the primary document upon creating a partnership. It helps identify nominated partners and record details as to salary or profit-sharing and the process of a partner joining or leaving the business.

If you need help with documentation to start a partnership, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

Frequently Asked Questions