What Should Your Partnership Agreement Include? (2026 Updated)

Starting a business with someone you trust can feel like the easiest decision you'll make all year.

But partnerships have a funny way of testing relationships - usually when money, workload, or big decisions are on the line. That's why a well-drafted partnership agreement isn't just "nice to have"; it's part of your legal foundations from day one.

In this 2026-updated guide, we'll walk through what your partnership agreement should include, why each clause matters, and the common gaps that cause disputes (even in otherwise successful businesses). If you're putting something in writing, you may as well make it actually protect you.

Do You Actually Need A Partnership Agreement?

If you and your business partner are running a business together with a view to profit, you may already have a partnership in law - even if you've never signed anything.

In England and Wales, partnerships are largely governed by the Partnership Act 1890 (and in Scotland, partnerships follow a different framework, but similar principles often apply). The big catch is that if you don't have a written agreement, the "default rules" may apply automatically - and they're rarely what modern business owners expect.

For example, without an agreement:

• you and your partner might be entitled to equal shares of profits (even if one of you is doing 80% of the work),
• you may have joint and several liability for business debts (meaning each partner can be personally pursued for the full amount), and
• the partnership may be capable of being dissolved more easily than you'd like, depending on the circumstances.

That's why it's worth getting the legal side clear early - not because you expect things to go wrong, but because you're building something worth protecting. If you're weighing options, it can also help to compare a partnership structure with other routes, like a company, using a plain-English breakdown such as Business Structure.

And if you're thinking "we'll sort it later", it's worth reading No Partnership Agreement as a quick reality check on what the law might assume in the meantime.

The Core Details Every Partnership Agreement Should Cover

A solid partnership agreement is essentially a rulebook for how you'll run the business and what happens when things change.

At a minimum, you want clear answers to: who owns what, who does what, who decides what, and what happens if someone wants out.

1) Who The Partners Are (And What The Partnership Is)

This sounds obvious, but it matters. Your agreement should clearly set out:

• the full legal names and addresses of each partner,
• the partnership name (including any "trading as" name),
• the business purpose (what the partnership actually does),
• the start date, and
• whether the partnership is for a fixed term or ongoing.

This also helps avoid confusion when you open bank accounts, sign supplier contracts, or apply for finance.

2) Capital Contributions (Money, Assets, Equipment, IP)

Partners don't always contribute the same thing. One partner might put in cash, while another contributes equipment, know-how, or customer relationships.

Your agreement should spell out:

• what each partner is contributing at the start (and when),
• whether contributions are gifts to the partnership or loans,
• who owns assets used by the business (especially if they were owned before the partnership started), and
• what happens if additional capital is needed later (do partners have to contribute, or can you source external finance?).

This is one of the biggest dispute areas, because people remember "what they put in" very differently after 12 months of trading.

3) Roles, Responsibilities, And Time Commitments

Even when you start with a shared vision, day-to-day reality can drift into resentment if it's not written down.

Your partnership agreement should cover things like:

• each partner's role (e.g. sales, operations, finance, product),
• expected working hours or time contribution,
• whether partners can take on other work or side projects, and
• minimum performance standards (where relevant) and what happens if they aren't met.

This isn't about micromanaging - it's about having something to point to if expectations stop matching reality.

4) Authority To Bind The Partnership

A key legal risk in partnerships is that one partner may be able to commit the business to contracts and liabilities.

So you'll typically want clear limits on authority, such as:

• spending limits (e.g. anything over ?X needs approval),
• which types of contracts require joint sign-off (leases, loans, long-term supplier agreements), and
• who can hire staff or appoint contractors.

This is especially important if you operate in a regulated space or sign high-value customer contracts.

If you're ready to get this done properly, a tailored Partnership Agreement is usually the cleanest way to lock in the commercial deal you've actually agreed - rather than relying on generic "one size fits all" terms.

How Should You Handle Profits, Losses, Drawings, And Tax?

Money is where most partnerships either become very strong (because everything is transparent) or start to fracture (because nothing is).

A good agreement should deal with the business's financial mechanics in a way that's practical for real life - including slow months, unexpected bills, and growth plans.

Profit And Loss Sharing

Be specific about how profits and losses are allocated. Common approaches include:

• Equal split (e.g. 50/50),
• Percentage split based on ownership or contribution (e.g. 60/40),
• Performance-based split (more complex, but sometimes used), or
• Fixed "salary-like" drawings plus a profit split.

It's also worth clarifying what counts as "profit" for distribution purposes. For example, will you retain profit to reinvest? Will you distribute quarterly? What happens if cashflow is tight but the accounts show a profit?

Drawings And Partner Payments

Partners often take drawings (money withdrawn from the business) rather than wages. Your agreement should cover:

• how drawings are calculated (fixed monthly, variable, or capped),
• whether partners can take ad-hoc withdrawals,
• how drawings are reconciled against profit share, and
• what happens if a partner overdraws (repayment terms, interest, set-off against future distributions).

Bank Accounts, Bookkeeping, And Financial Reporting

To avoid misunderstandings, include clauses on:

• which bank account(s) will be used and who has access,
• how many signatories are required for payments,
• record-keeping standards and accounting software,
• how often partners receive management accounts, and
• year-end accounts and tax return responsibilities.

Even if you and your partner are close friends, clear financial reporting is one of the simplest ways to keep trust high.

Tax: Don't Leave It Vague

In many partnerships, each partner is taxed personally on their share of profits. Your agreement can help avoid nasty surprises by clarifying:

• how profits are allocated for tax purposes,
• whether the partnership retains funds to help partners pay tax bills, and
• how tax advice and accounting costs are paid.

This is one of those areas where a quick chat with both a lawyer and an accountant early can save months of frustration later.

How Will You Make Decisions And Resolve Disputes?

When everything's going well, decision-making feels easy. When you disagree, you'll want a clear process that prevents deadlock and keeps the business moving.

Day-To-Day Decisions Vs Major Decisions

It often helps to split decisions into two categories:

• Ordinary decisions (day-to-day operational matters) that can be made by one partner or by majority; and
• Reserved matters (big decisions) that require unanimous approval.

Reserved matters might include:

• taking on debt or finance,
• entering a lease or long-term contract,
• bringing in a new partner,
• changing the business model,
• selling key assets, or
• changing profit share arrangements.

Deadlock Clauses

If you have two partners with a 50/50 split, deadlock is a real risk. Your partnership agreement can include a deadlock mechanism, such as:

• escalation to a meeting with a set agenda and timeframes,
• referral to mediation,
• an independent expert determination for technical issues, or
• a buy-sell mechanism (where one partner can offer to buy the other out, and the other must accept or buy on the same terms).

These clauses aren't about being dramatic - they're about making sure a single disagreement doesn't freeze the business for months.

Dispute Resolution Steps

It's common to include a staged process like:

1. good-faith negotiation between partners,
2. mediation, and
3. court proceedings only as a last resort.

This approach can save time, costs, and relationships, especially when the dispute is commercial rather than personal.

If you want examples of how these terms are commonly structured, Partnership Agreements is a helpful reference point for the kinds of clauses business owners usually include.

What Happens If Someone Leaves, Gets Sick, Or Wants To Sell?

This is the part most partners avoid talking about - and it's exactly why it belongs in writing.

Your agreement should plan for change, because change is normal: people relocate, priorities shift, health issues happen, and sometimes a partner simply wants out.

Partner Exit And Notice Provisions

Set out:

• whether partners can resign voluntarily,
• how much notice they must give,
• whether they can be required to work their notice (or whether you can pay them out instead), and
• what information and property must be returned (equipment, passwords, customer lists).

What Triggers A Forced Exit?

It's also common to include "expulsion" or "forced transfer" events, such as:

• serious misconduct, fraud, or dishonesty,
• material breach of the partnership agreement,
• bankruptcy or insolvency,
• long-term incapacity, or
• criminal conduct that damages the business.

These clauses need careful drafting - you want them to be enforceable and fair, while still protecting the business from serious risk.

How Will A Partner's Share Be Valued?

If a partner leaves, you need a valuation method. Without one, you're often left arguing under pressure.

Common valuation approaches include:

• an agreed fixed value updated yearly,
• a valuation formula (e.g. a multiple of profits), or
• independent valuation by an accountant or business valuer.

You should also think about payment terms (lump sum vs instalments), interest, and what happens if the business doesn't have the cash immediately.

Restrictive Covenants: Protecting The Business After Exit

If a partner leaves, can they immediately set up next door and take your clients?

Restrictive covenants can help protect goodwill, confidential information, and relationships. They might include:

• non-compete clauses (within reasonable limits),
• non-solicitation of customers, and
• non-poaching of staff or contractors.

These restrictions need to be reasonable to be enforceable - overly broad restraints can backfire.

Death Or Incapacity

Your partnership agreement should address what happens if a partner dies or becomes unable to work. Options might include:

• automatic dissolution (often not ideal),
• the remaining partner(s) buying out the departing partner's estate, or
• a clear succession plan for management and ownership.

If you're planning for the possibility that the business relationship ends, it's also worth considering the paperwork that formalises the breakup. A Partnership Dissolution Agreement can help document what's been agreed, finalise ownership of assets, and reduce the risk of disputes resurfacing later.

Key Takeaways

• A written partnership agreement helps you avoid relying on default legal rules that may not reflect how you actually run your business.
• Your agreement should clearly cover the basics: who the partners are, what the business does, and who owns which assets and contributions.
• Profit sharing and drawings should be structured in a way that matches cashflow reality, not just what looks fair on paper.
• Decision-making clauses (including reserved matters and deadlock mechanisms) can prevent the business stalling when partners disagree.
• Exit planning is essential: include notice rules, forced exit triggers, valuation methods, and post-exit restrictions to protect goodwill.
• If you're unsure whether a partnership is even the right structure long-term, comparing options like Partnership Pros And Cons can help you make a confident choice.

If you would like help putting a partnership agreement in place (or reviewing an existing one), you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.