A partnership agreement replaces the Partnership Act 1890 defaults with terms the partners have chosen. The clauses that do most work are those on duration and continuity, capital and property, profit shares and drawings, decision making and authority, and what happens when a partner retires, dies or is expelled. The agreement governs relations between the partners; it cannot reduce what they owe to outsiders.

Does a partnership need a written agreement?

No. A partnership can be created orally or by conduct, and the Official Receiver’s guidance notes that a written agreement can even be superseded by a later oral one. Section 19 of the 1890 Act allows the terms to be varied by the consent of all the partners, express or inferred from a course of dealing. The same guidance says that a signed agreement is normally enough, but a deed is needed for any part that transfers property, and that many agreements are executed as deeds anyway. If the partnership was constituted by deed, section 26(2) provides that a signed written notice is sufficient to end a partnership at will.

The case for writing it down is that the defaults rarely fit. The ACCA’s partnership factsheet, which ends with a checklist of contents, puts the point directly: without an agreement any one partner can bring the whole business to an end immediately by notice. The agreement also binds only the partners. The Official Receiver’s guidance stresses that it cannot set rules for the firm’s relationship with third parties, so clauses limiting liability between partners work only as indemnities.

What should it say about start date, duration and name?

Commencement. State the date the partnership begins, but understand that the facts decide. HMRC’s Partnership Manual (PM134100) says a written agreement cannot create a partnership retrospectively, and if the parties were already trading on oral terms, the partnership dates from then. The ACCA suggests an indemnity for any partner who signed contracts for the business before the stated date.

Duration. Under sections 26 and 32(c), a partnership for an undefined time ends whenever any partner gives notice. The agreement should either fix a term or, more commonly, provide that the partnership continues until ended under its own provisions, with a notice period for a partner who wants to retire. The ACCA notes that courts readily find that almost any termination provision displaces the at will rule, citing a case where it was enough that the agreement could be ended only by mutual consent.

Continuity. Section 33 dissolves the firm on the death or bankruptcy of any partner unless otherwise agreed. A continuity clause keeps the business running with the remaining partners and links into the retirement and payout provisions.

Name. If the firm trades under a name that is not just the partners’ surnames, sections 1200 to 1203 of the Companies Act 2006 require the partners’ names and an address for service on business documents, with a list alternative for firms of more than 20.

How should capital and property be dealt with?

Record each partner’s capital contribution and whether it was cash or assets, whether interest is paid on capital (the default in section 24(4) is none), and the rate for advances beyond agreed capital (otherwise five per cent under section 24(3)). Say whether capital is held in fixed capital accounts separate from current accounts; the ACCA describes a case where the absence of separate accounts decided whether years of undrawn profit counted as capital, with limitation consequences. See capital and current accounts.

List which assets are partnership property and which belong to individual partners. Sections 20 and 21 treat property brought into partnership stock, or bought with firm money, as partnership property unless a contrary intention appears. Premises owned by one partner and used by the firm need clear terms of occupation.

How should profits, losses and drawings be shared?

Without an agreement profits and losses are shared equally and no partner is paid a salary (section 24(1) and (6)). Most agreements set a profit sharing ratio, any prior shares (often called partner salaries), interest on capital, how capital profits are shared, and limits on monthly drawings. The ACCA notes common models such as lockstep, where shares rise with years in the firm, and allocation by a management committee or a specified majority vote after performance reviews. It also flags questions the agreement should answer, such as whether prior shares are cut back if profits are too small, and whether fees from outside appointments belong to the firm.

The tax return follows the agreement. HMRC says at PM138000 that each partner’s share shown in the partnership statement is conclusive for their own return, and that since 2018 to 2019 a partner who disputes the allocation can refer the dispute to the tribunal while still returning the allocated figure. See how partnership profits are shared for tax.

How should decisions and authority be handled?

By default, ordinary business questions are decided by a majority per head, while any change in the nature of the business and the admission of a new partner need unanimity (section 24(7) and (8)). Agreements typically weight votes by profit share, reserve specific decisions (borrowing above a limit, taking on premises, admitting partners) to a stated majority, and set up a management board in larger firms. Under section 8, an agreed restriction on a partner’s authority protects the firm only against outsiders who know about it, so the clause should be backed by internal consequences for breach.

Naming the nominated partner for Self Assessment and the person who prepares the accounts avoids confusion; HMRC treats the nominated partner as responsible for the partnership return.

What should happen when a partner leaves?

The 1890 Act says little about departures, and its defaults are unhelpful: no right to retire without dissolving, no power to expel (section 25), and an outgoing partner’s choice under section 42 between a share of later profits or five per cent interest if the others carry on without settling. A good agreement covers:

  • Retirement: notice period, often ending on an accounting date, and any indemnity from continuing partners for firm debts.
  • Expulsion: the grounds, the majority needed, the procedure and the effective date. See expelling a partner.
  • Death and incapacity: continuation, payment to the estate, and any insurance funding.
  • The payout: leaving accounts or time apportionment, whether assets are revalued, whether goodwill is paid for, and payment by instalments. Section 42(2) removes the later profits claim if an option to buy the outgoing share is properly exercised.
  • Restrictive covenants: non solicitation and non dealing periods. The ACCA notes these must be reasonably necessary to protect goodwill but are generally easier to enforce between partners than against employees.
  • Retirement ages: the ACCA warns that compulsory retirement at a set age is potentially age discrimination unless objectively justified.

How does an agreement change the outcome?

Illustration only. Three partners run a surveying practice. One partner dies unexpectedly. Without an agreement, section 33 dissolves the firm and the estate can insist on the winding up and sale of assets under section 39. With an agreement containing continuity, option to purchase and payout clauses, the two survivors carry on, the estate receives the deceased partner’s capital and current account balances over 12 monthly instalments, and the estate cannot claim a share of later profits because the option was properly exercised under section 42(2).

What mistakes do partnership agreements commonly contain?

  • Leaving no expulsion power, or one with vague grounds and no procedure.
  • Using a template that does not reflect how the firm actually runs, or failing to update the agreement when partners join or leave.
  • Silence on capital profits and goodwill, so the default equal sharing applies to a valuable asset.
  • Assuming clauses bind creditors; they do not.
  • Copying a company shareholders’ agreement without adapting it to unlimited liability and the 1890 Act.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.