Beware of Partnerships!

Are you in a business partnership?

It might seem strange to think you need a partnership agreement when you’re in business with an old friend or husband/wife/civil partner/personal partner. But things can go wrong and I’ve seen it happen a lot in the many years I’ve been an accountant (and even before!).

Here are some possible scenarios:

It could be your partner dies and you suddenly find his/her share has been been passed to a relative or personal partner you don’t know/like. What do you do if they try to prevent you making decisions to move the business forward or dislike what you’re doing?
It could be your partner has a long-term illness and can’t work in the business. As a partner they are still entitled to their share of the profit whether they do any work or not. Do you work twice as hard or get help and diminish the profit, including your share?

It could be your partner decides to retire and wants their share out of the business. Do you have to sell all the business assets in order to give them their money? What happens to the business you’ve spent years working on?

It could be your partner and you can’t agree what direction to take the business in. I have seen businesses paralysed for years through indecision and because there was no guidance to resolve disputes.

It could be your partner takes out a loan on behalf of the partnership and then runs off to the Cayman Islands. As you don’t have a partnership agreement the law states ‘you are jointly and severally liable’. Which means, if the lender doesn’t get paid you’re personally liable for the loan.

All of the above scenarios are very real and could easily happen. But if you have a partnership agreement in place then you will have a legal document to help resolve many of these issues.

It’s not a difficult process to put in place. Talk to your solicitor (and make sure they are used to commercial, not domestic, law) and ask them to set up an agreement for you. Then get your accountant to have a look over it in case there’s something missing.

Your accountant should be nagging you to get one in place anyway!