Do you run a business with at least one other person? If you answered yes, then we hope you also have a partnership agreement.
If you don’t have one, or you are not entirely sure what it is or why you need one, we recommend taking a quick read of this blog that we shared in August first.
To give you a quick breakdown of a partnership agreement, its main function is to outline each partner’s rights, responsibilities, and profit-sharing (and losses), amongst other things.
Why do I need to review my partnership agreement?
Too often we’ve seen business owners draft and sign their agreement, only to store it away and forget about it.
Unless, of course, something’s gone wrong that’s forced them to dig it out to check what their next steps should be.
The problem is that businesses evolve. Circumstances change, new opportunities come in and partners move on.
If your agreement doesn’t reflect your current position, it might not protect you in the way you expect.
Key reasons to review and update your partnership agreement
The following are examples of where we would recommend our clients review and update their agreement:
- When a new partner joins the firm or an existing one leaves, your agreement should reflect this and be adjusted accordingly, which may require negotiation to ensure everyone’s expectations are clear.
- When the business expands or changes direction, your agreement should cover new areas of risk or responsibility.
- When there is an adjustment to investments, profit distribution or salaries, it must be properly recorded.
- When there is a change in legislation (tax or regulation), this can affect the partnership and its structure, so the agreement will need to remain compliant with any updates.
- When you’re preparing for the future or retirement, with a succession plan, the agreement should support a smooth transition.
- When you want to make changes to or confirm your approach to handling disputes.
If you’d like to discuss any of the above further or have any questions about whether or not you need to update your partnership agreement, please contact one of our solicitors.
When should I review my partnership agreement?
There isn’t a fixed rule on timing, but we usually recommend reviewing your agreement every year.
It’s also sensible to revisit it whenever a significant change occurs in your business or among your partners, just to be sure everything remains aligned.
We’re not suggesting you add more admin to your already full workload. Regular reviews can be as simple as a quick discussion with your solicitor to keep your agreement working for you.
Need help reviewing your partnership agreement?
If it’s been a while since you last looked at your partnership agreement, or if you’ve never had one drawn up, it’s worth taking professional advice.
Our solicitors can review your existing document, identify any areas that might cause problems in the future and make sure your agreement reflects your current business position.
Get in touch with our corporate team in Essex to arrange an appointment.