Do you have a Partnership Agreement, and is it up to date?

In the life of a partnership, it’s often the day-to-day work of running the business that takes priority. Drafting or revisiting a partnership agreement can fall down the to-do list while you’re focused on clients, growth or operations. But not having a written and up-to-date agreement, or relying on an outdated one, is one of the most common causes of disputes, uncertainty and unintended consequences for businesses operating as partnerships.

A well-drafted partnership agreement isn’t just a legal formality; it’s a business tool. It clarifies how the partnership will work in practice, how decisions are made, how profits and losses are shared and what happens when circumstances change.

Here are the key areas to check, the pitfalls we see most often and why regular reviews matter.

Do you have a written agreement?

If there’s no written partnership agreement, the default rules in the Partnership Act 1890 will automatically apply. These statutory rules often don’t reflect how partners intend to run their business. For instance, they can result in equal profit shares regardless of input, automatic dissolution on a partners exit when a partner leaves and lacks the tools to manage underperformance or deadlock.

Does it reflect how you currently operate?

It’s not unusual for partnership agreements to be drafted at the outset and then left untouched. If day-to-day practice has diverged from the document, disagreements can arise about what partners intended versus what they actually agreed.

Check that your agreement reflects:

• Who the current partners are, including admission and removal processes and any corporate partners.
• What the partnership does and where it operates, including new service lines or locations and any relevant regulatory permissions and insurance
• Roles, responsibilities and profit share, including authority to vary shares for lateral hires or changing contributions
• Decision-making processes, such as voting thresholds, written resolutions, deadlock and delegated authorities
• How disputes are resolved, including escalation steps and whether expert determination or mediation applies.

Regularly revisiting these elements helps align your agreement with the business as it evolves.

Have you planned for change?

One of the biggest causes of tension in partnerships is the absence of clear provisions for change, especially where those changes are foreseeable. A robust agreement should include:

• Exit and succession mechanisms: what happens if a partner retires, becomes incapacitated or wants to leave
• Valuation and buy-out terms: how a partner’s interest is valued and paid out
• Capital contributions and financial obligations: who must contribute additional capital and on what terms
• Profit and loss allocation: how profits (and losses) are shared, especially where partners’ contributions differ.

Without clear mechanisms, partners can find themselves in protracted disputes or deadlock, with costly legal consequences.

Decision-making and deadlocks

Although partnerships are collective enterprises, an agreement that does not clearly set out how decisions are made can lead to unintended consequences.

Consider whether your agreement sets out:

• Which decisions require unanimous consent and which may be taken by a simple majority
• What happens if partners cannot agree
• Any tie-break mechanisms or mediation steps.

Clarity here can prevent everyday decisions from becoming undue friction points.

Common pitfalls to watch out for

In practice, there are several recurring issues that we see across different sectors:

• Outdated terms that no longer reflect current law or commercial realities
• Vague or ambiguous clauses that leave too much to interpretation
• Missing dispute resolution mechanisms, meaning partners are left rely on slower, costlier default legal processes, which can be time-consuming and expensive
• No planning for exits or unexpected events, such as incapacity or death.

Treat your agreement as a living document

Partnerships evolve over time, whether through new business opportunities, structural changes or different visions among partners. A partnership agreement should grow with the business, rather than remain something signed once and forgotten.

A trigger for review might include:

• A new partner joining
• A change in the business model
• Significant disagreements among partners
• Legislative or regulatory changes.

Keeping your partnership agreement current and fit for purpose helps safeguard your business and reduces the risk of costly, disruptive disputes.

If you’re unsure whether your agreement is up to date or fit for purpose, a focused review can protect the continuity and success of your partnership. Clear, agreed and well-drafted terms give you clarity, certainty and confidence in how your business operates.