A Partnership Agreement is a legally binding contract between two or more persons who agree to carry on a business together with a view to making a profit. In England and Wales, the formation and operation of general partnerships are governed primarily by the Partnership Act 1890, one of the oldest pieces of commercial legislation still in force in the United Kingdom. Section 1(1) of the Act defines a partnership as the relation which subsists between persons carrying on a business in common with a view of profit. Unlike a limited company or a limited liability partnership (LLP), a general partnership does not have separate legal personality — each partner is personally and jointly and severally liable for the debts and obligations of the firm.

A partnership can arise informally through conduct, but a written Partnership Agreement is essential to establish clear terms, define each partner's rights and obligations, and vary the default provisions of the Partnership Act 1890. Without a written agreement, the default rules in sections 24 to 26 of the Act will apply automatically. These defaults include equal sharing of capital, profits, and losses (section 24(1)), the right of every partner to take part in management (section 24(5)), and the requirement that no person may be introduced as a partner without the consent of all existing partners (section 24(7)). Many of these defaults are commercially unsuitable for partnerships where partners contribute unequal amounts of capital or devote different amounts of time to the business.

A UK Partnership Agreement must also take into account the tax treatment of partnerships. A general partnership is transparent for income tax purposes — the partnership itself does not pay income tax or corporation tax. Instead, each partner is assessed individually on their share of the partnership profits under the Income Tax (Trading and Other Income) Act 2005. The nominated partner must register the partnership with HMRC for Self Assessment and file an annual Partnership Tax Return (form SA800). Each individual partner must also file a personal Self Assessment tax return. This template is designed for general partnerships governed by the laws of England and Wales and incorporates references to the relevant statutory provisions.

A Partnership Agreement is needed whenever two or more individuals or entities intend to carry on business together in England and Wales with a view to generating profit. The most common scenarios include professional practices such as solicitors, accountants, architects, and medical practitioners who practise in partnership; small and medium-sized trading businesses run by family members, friends, or business associates; joint ventures where two or more businesses agree to collaborate on a specific project or ongoing commercial activity; and creative partnerships in sectors such as design, marketing, and technology.

You should put a Partnership Agreement in place before commencing any business activity. Under the Partnership Act 1890, a partnership can arise simply through conduct — if two people are carrying on business together with a view of profit, a partnership exists in law whether or not they intended to create one. Without a written agreement, the statutory default rules will apply, and these are often not what the partners would have chosen. For example, section 24(1) provides that all partners share profits and losses equally, regardless of their capital contributions or time commitment.

A Partnership Agreement is also needed when the structure of an existing informal partnership changes — for example, when a new partner joins, an existing partner retires, or the partners wish to change the profit-sharing ratios. Similarly, if the partners wish to include restrictive covenants, confidentiality obligations, or specific dispute resolution procedures, these must be agreed in writing to be enforceable. The Agreement should be reviewed and updated periodically to reflect changes in the law and in the circumstances of the partnership.

A comprehensive Partnership Agreement for use in England and Wales should address the following key elements to ensure clarity, enforceability, and compliance with the Partnership Act 1890 and related legislation.

Partnership name and business description: The agreement should clearly state the trading name of the firm and the nature of the business to be carried on. Under the Companies Act 2006, Part 41, and the Business Names Act 1985, there are restrictions on certain words and expressions that may be used in business names without prior approval.

Capital contributions: The agreement should specify each partner's initial capital contribution and the terms on which additional capital may be required. Under the default rules of the Act, partners share capital equally, but this is frequently varied by agreement.

Profit and loss sharing: The ratios in which net profits and losses are to be divided among the partners should be clearly stated. The agreement may also provide for priority profit shares, salaries, or interest on capital before the residual profit is divided.

Management and decision-making: The agreement should set out how the partnership business is to be managed, which decisions require unanimous consent, and what authority individual partners have to bind the firm. Under section 5 of the Act, every partner is an agent of the firm, so it is important to restrict the authority of individual partners in relation to major decisions.

Banking and financial records: The agreement should identify the bank at which the partnership account will be maintained, the signing requirements for withdrawals, and the obligations to maintain proper books of account. HMRC requires the partnership to keep accurate records for at least 5 years.

Retirement, expulsion, and death: The agreement should address the circumstances in which a partner may retire or be expelled, the notice period required, and how the departing partner's share is to be valued and paid out. An express power of expulsion is essential because, under section 25 of the Act, no partner may be expelled without such a power.

Dissolution: The circumstances triggering dissolution should be clearly defined, along with the procedure for winding up the partnership's affairs and distributing its assets in accordance with sections 39 to 44 of the Act.

Dispute resolution: A dispute resolution clause providing for mediation, arbitration, or both is advisable to avoid the cost and disruption of court proceedings. The agreement should specify the applicable governing law as the laws of England and Wales and confer exclusive jurisdiction on the courts of England and Wales.