The existence of partnerships is a popular concept amongst landed estates and rural, owner-managed and family businesses. Where any changes, such as ownership or incoming partners are anticipated, it is important that the partnership documentation is reviewed and updated to reflect how the business operates in practice. This may include updating the partnership documentation or preparing additional documentation and ensuring that any associated documentation is aligned with the ongoing business relationship.
Often family businesses do not have a partnership agreement in place. It is important that the terms of a partnership be documented, by way of a partnership agreement, because even families can disagree… Without a partnership agreement, the terms binding the partnership will be governed solely by the Partnership Act 1890. The date of the legislation tells you all you need to know about the complexities of interpreting this legislation during times of disagreement or stress. Partnerships should document the existence of the relationship whilst all partners are in agreement. This provides the added comfort of knowing the parties’ intentions were clear should matters of death, dispute or succession arise.
Where partnership interests are being altered, it is important that the partnership documentation accurately reflects how the business operates and how its assets are treated. Assets used by the partnership may not necessarily be partnership property, and assumptions can lead to uncertainty and dispute. A well drafted partnership agreement should reflect what property is owned by the partnership and the agreement should be updated overtime as arrangements evolve. Failure to update partnership agreements can give rise to disputes when partners retire, interests are transferred or the partnership relationship breaks down.
If the property has not been correctly transferred to the partnership, it can be detailed through a deed of gift to the partnership. A deed of gift is a formal legal document that facilitates the voluntary transfer of ownership of an asset from one person to another without any payment of consideration and does not replace the need for a partnership agreement. Any transfer must align with the current partnership documentation.
Where a partnership is brought to an end, dissolution may occur in accordance with the terms of the partnership agreement. However, a deed of dissolution may be required to formally record the termination of the partnership, confirm the effective date and the agreed position.
Dissolution can often highlight the lack of uniformity between the partners wishes and understanding and demonstrates the necessity of having a documented partnership agreement which is updated throughout the existence of a partnership.