Business Partnership Agreement Template - UK

The Best Contract for Your Needs

Like the term ‘intellectual property’ as explained in our IP overview here, the term “partnership” is generic and can have a few connotations. Identifying the correct business partnership agreement sample for the situation is the first step to completing a legal agreement.

Some arrangements are named ‘Partnerships’ in marketing materials, corporate programs, or internal communications for simplicity and to emphasise the importance of the relationship between business partners.

Partners in Distribution, Resale and Systems Integration Agreements.

Often a manufacturer will implement a ‘Partner Program’ as part of the go-to-market for their offers (whether hardware, consumer goods, software, SaaS, etc).  The manufacturer provides products, while the partner markets, sells, and supports them.

These types of agreements are often loosely called ‘Partner Agreements.’

For example, Charu in the Brownie examples from our IP Article may well have a number of retail partners who market the oven to consumers.  Features of these agreements can include:

• Exclusivity or preferred terms
• Incentives and discounts for volume sales
• Rights to market in a specific territory
• Performance and sales targets
• Obligations to provide first line warranty support.
• Cooperative marketing arrangements which protect the IP of both manufacturer and distributor

Resale arrangements described above typically do not involve profit and loss sharing or formal capital contributions in a co-ownership model.  The two contracting parties remain at ‘arm’s length’ in this respect.  For a comprehensive partner agreement template that includes these deal points, contact us to set up a free consultation.

Brand Sponsors or Brand Partner Agreements

A sponsor agreement is a type of partnership where one party provides funding or support to another in exchange for promotional benefits or other agreed terms. These contracts are common in events, sports, and media. Key features include:

• Financial or in-kind support for promotional efforts.
• Sponsored individual or company delivers agreed exposure (e.g., brand placement or recognition).
• University or non-profit receives support from the private sector at a program or event in exchange for visibility.

An example from the brownie start-ups business: Linda agrees to provide free brownies during intermission at a university concert in exchange for brand placement on promotional materials and at the event.

Key Suppliers or Subcontractors as Partners

In technology services arrangements, often the ‘partner’ company is a key component of an overall offer to the end user customer.  For example, a consulting company may be bidding on a large-scale implementation that involves expertise in SAP.  In order to augment its expertise, the consulting firm brings in a specialist supplier who provides additional resources and also can be present in bid discussions.

In this case the primary purpose is to ensure reliable supply of the service, so the partner contract would need to include pricing, quality standards, delivery schedules, and payment terms tailored to the customer requirements at issue.

Formal Partnership Agreements – Which One Fits Your Business?

So, having reviewed several types of models that are often informally called “partnerships,” you’ve determined that none of them are really what you’re after.  Perhaps it’s necessary to think about the legal structures that exist for a formal partnership arrangement.  In this case, it may be that

• Two or more people are collaborating create a separate entity with its own name, financial targets, and contracting capabilities.
• A specific project opportunity has come up that two companies want to bid on and deliver jointly.
• Two or more individuals are looking to share costs of office space and potentially have cross-referral capabilities.

In any of the above scenarios, a customised partnership agreement will be needed with careful review of additional terms.

There are many Partnership Agreement templates available online, including general partnership agreement templates and limited liability partnership agreement templates.   A Partnership Agreement template can provide a useful starting point for creating a comprehensive Partnership Agreement.   However, it’s essential to ensure that the partnership agreement template is tailored to the specific needs of your partnership. Read on to understand why.

General Partnerships – Proceed with Caution

A ‘general partnership’ is a simple and flexible way for two or more people to run a business together and share profits. While easy to set up, it comes with significant risks and legal responsibilities. In a general partnership, the partners agree to pool resources, share their revenue and profits, and make joint decisions about a given endeavour.  The agreement does not have to be in writing, but significant issues can come up if there is no writing and unfair outcomes can occur.

In a general partnership, all partners are personally responsible for the business’s debts. This implies that if the partnership is unable to settle its debts, creditors have the right to pursue the personal assets of any partner, even if the debt was incurred by just one partner.

Each partner is also a general agent – they can make decisions or sign contracts that legally bind the entire partnership, potentially exposing other partners to financial risks they didn’t agree to.

Managing liability and risk in a general partnership by choosing partners carefully. Strongly consider concluding a basic written agreement that addresses:

• who can make decisions on what issues.
• how profits are shared and how are disagreements handled.
• defined roles and obligations of each partner to reduce misunderstandings.
• what happens if a partner leaves or the partnership ends.

For example, without a written agreement, profits are split equally, regardless of how much effort or money each partner contributes, which may not be fair.

Key Considerations in Setting up a Partnership Agreement

Assume that having read this far, it’s clear that what is needed is a formal written contract to cover the business partnership.  To save time and avoid too much legalese, you can get up to speed on partnerships by understanding the following key concepts:

Purpose of the Partnership

Why are the parties working together and what are the goals for the endeavor? Establish whether the agreement will be broad and enable the parties involved to pursue various business opportunities and revenue target.  If the need is related to a specific, discrete project, such as launch of a new product, a joint venture agreement might be more useful. A joint venture agreement establishes a temporary partnership or collaboration between two or more parties for a specific project or purpose. Unlike partnerships, joint ventures are usually limited in scope and duration.

Joint ventures are designed to achieve a defined objective (e.g., product development or market entry).  Like other partnership agreements, the JV usually entails a separate legal entity, contractual obligations and clearly defined contributions of capital, resources or expertise.

Determine the Legal Entity

What is the legal form of the partnership?  As explained above the general partnership is an arrangement where no separate legal entity is formed, and the individual partners are liable for acts of the other.

For a general partnership, a partnership agreement outlines the terms between two or more individuals or entities joining together to operate a business for profit. It specifies contributions, roles, profit-sharing arrangements, and dispute resolution methods. The contract should establish clear operational and financial terms.  Generally, profit sharing is proportional to each partner’s capital contributions unless otherwise agreed.

No separate legal status, e.g., the partnership does not file its own taxes but each partner files individual returns.  In addition, debts and liabilities are jointly held and ‘pass through’ to the individual partners.

To further minimise legal risk, the partners can conclude a limited liability partnership (LLP). It is a popular choice for professionals and small businesses in the UK seeking to protect personal assets while maintaining operational flexibility.

To establish an LLP, the following steps must be completed:

CHOOSING A NAME

The LLP’s name must be unique and comply with the naming rules under UK law, such as avoiding offensive words or names identical to existing businesses.

DESIGNATED MEMBERS

An LLP requires at least two designated members who have additional responsibilities, such as filing annual returns and accounts with Companies House.

INCORPORATION AND HMRC PROCESS

1. File an incorporation form (LL IN01) with Companies House, which includes details such as the LLP’s name, address, designated members, and the nature of the business.
2. Pay the incorporation fee.
3. The LLP needs to be registered with HMRC for self-assessment, VAT (if applicable), and as an employer if it will hire staff.

PARTNERSHIP AGREEMENT

Although not legally required, a written LLP agreement is strongly recommended. This legal document outlines how profits will be shared, decision-making processes, and the roles of each partner. Without this, default rules under the Limited Liability Partnerships Act 2000 apply, which may not suit all partners.

KEY RISKS OF AN LLP

Personal Guarantees: In some cases, creditors may require personal guarantees from partners, exposing them to liability despite the LLP structure.

Administrative Burden: LLPs are required to file annual accounts, submit confirmation statements, and maintain statutory records, which can be time-consuming and costly.

Potential Disputes: Without a well-drafted partnership agreement, disputes over decision-making or profit-sharing can arise, leading to business disruptions.

Unlimited Liability for Fraud or Negligence: Partners are personally liable for their actions if found negligent or fraudulent, despite the LLP’s limited liability status.

Profit and Loss Distribution: One key risk of an LLP in regards to profit and loss distribution is the potential for disputes among business partners if the partnership agreement does not clearly outline how profits and losses are to be shared. Without a comprehensive partnership agreement, disagreements can arise over unequal contributions or perceived unfairness in profit-sharing, which can strain relationships and impact the partnership’s success.

A Limited Liability Partnership is an excellent choice for professionals or businesses that prioritise flexibility, shared management, and personal asset protection. By meeting the legal requirements, such as proper registration and a clear LLP agreement, partners can establish a robust structure. However, careful planning is essential to mitigate risks such as administrative burdens, disputes, or potential liabilities. With the right approach, an LLP offers a blend of security, efficiency, and credibility, making it a powerful tool for collaborative businesses in the UK.

Address Capital Contributions

Capital contributions in a general partnership are the funds, assets, or resources provided by partners to finance the business. These contributions from the partnership’s initial capital and may also include subsequent investments as the business grows. Proper management of capital contributions is critical to ensure fairness, transparency, and operational stability.

KEY ASPECTS OF MANAGING CAPITAL CONTRIBUTIONS

1. Initial Contributions: Each partner’s contribution—whether in cash, property, or expertise—must be clearly defined. This ensures clarity about ownership percentages and entitlements.
2. Ongoing Contributions: The partnership agreement should specify whether additional contributions may be required, how they will be calculated, and the consequences of a partner failing to meet their obligations.
3. Valuation: Non-monetary contributions, such as property or equipment, should be accurately valued and recorded to avoid disputes.

WHAT TO INCLUDE IN THE PARTNERSHIP AGREEMENT

1. Details of Contributions: Outline each partner’s initial and future contributions, including their type and value.
2. Profit Sharing: State how contributions influence profit and loss allocations. For example, partners may share profits in proportion to their capital contributions.
3. Withdrawal of Capital: Specify whether and how partners can withdraw capital during the partnership’s operation.
4. Dispute Resolution: Include mechanisms for resolving disagreements regarding contributions or valuations.

By managing capital contributions effectively and documenting terms in the partnership agreement, general partnerships can minimize conflicts and establish a strong financial foundation.

Decide Ways of Working and Decision-making

A Business Partnership Agreement should outline the management structure of the partnership, including who is in charge and how decisions are made. Examples of key issues:

• New partner rules, including whether new partners can join and, if so, the voting requirement for admittance
• Day-to-day management responsibilities
• Partner compensation
• The partnership’s preferred dispute resolution method
• When regular meetings will be held
• Decision-making rules and voting requirements to make business decisions, and types of decisions that require the unanimous consent of all partners
• Voting rights of all the partners: Whether the value of partners’ votes is equal, proportionate to capital contributions, or proportionate to profit share
• Authority of individual partners to enter contracts on behalf of the partnership or whether a partnership vote is required

Establish Profit Sharing Procedures

Profit sharing in a partnership is a flexible and customizable process that can be tailored to suit the unique needs of the business and its partners. By basing allocations on capital contributions, performance, or a hybrid approach, the partners can ensure fairness and incentivize contributions. The business partnership agreement plays a critical role in documenting these arrangements, reducing potential conflicts, and providing a clear framework for future adjustments.

The agreement governs how profits and losses are shared among partners. Common methods include:

Proportional to Capital Contributions

Partners share profits and losses based on the proportion of their capital contributions. For instance, if one partner contributes 60% of the capital and another contributes 40%, they would receive 60% and 40% of the profits, respectively. This method is straightforward and incentivizes higher capital investment.

Equal Sharing

Profits and losses are divided equally among partners, regardless of their capital contributions or roles. This method is often used when partners contribute equally in non-monetary terms, such as expertise or time. However, it may cause disputes if contributions are imbalanced.

Performance-Based

Profits are allocated based on each partner’s performance or contribution to the LLP’s operations, such as generating revenue or managing key projects. This approach rewards active participation but requires clear metrics to avoid conflicts.

Fixed Share with Bonus

Partners receive a fixed percentage of profits, with additional bonuses based on individual contributions, such as exceeding performance targets or securing new clients. This method balances stability with incentives.

Hybrid Models

Many LLPs use a combination of methods, such as allocating a portion of profits based on capital contributions and dividing the remainder based on performance. Hybrid models provide flexibility and encourage fairness.

How Contributions Influence Profit and Loss Allocations

Capital contributions, time, and expertise often play a significant role in determining how profits and losses are shared.

Partners who contribute more capital, whether in the form of financial resource, intellectual property, or client lists may justifiably expect a larger share of profits to reflect their higher financial risk. For instance:

• High Capital Contribution: A partner contributing £100,000 may receive a larger profit share than a partner contributing £50,000.
• Non-Monetary Contributions: Contributions like equipment, property, or intellectual property are typically valued and treated as capital investments.
• Skills and networks: These non-monetary contributions may be assigned a value or rewarded through profit-sharing adjustments. For example a partner providing legal expertise may receive a profit share that compensates for their unique skills. Also, time invested in management or operations may influence allocations.

The Importance of the Agreement

To avoid disputes and ensure clarity, the agreement must outline:

• Profit-Sharing Ratios: Whether based on capital contributions, performance, or other factors.
• Loss Allocations: Define how losses are shared, ensuring fairness and avoiding excessive burdens on any partner.
• Adjustments: Terms for revisiting profit-sharing arrangements if circumstances change, such as new partners joining or changes in contributions.
• Withdrawal or Reinvestment: Specify whether profits can be withdrawn entirely or if a portion must be reinvested into the LLP.

Dissolution, Exit or Withdrawal of a Partner

A well-structured Partnership Agreement can help to ensure that the partnership is terminated or dissolved in a fair and orderly manner. There should be an outline the procedures for terminating or dissolving the partnership.   The business partnership contract should establish the events that trigger dissolution and the procedures that need to be followed, including:

• When a partner wants to leave a partnership, that partner serves all the other partners with a Notice of Withdrawal from Partnership.
• An example would be selling and assigning one or more partners’s partnership interest to another party to retire. Note that the remaining partners’ consent is required to assign more than just an economic interest in the partnership.
• On the other hand, if the other partners decide they need to remove a particular partner from the partnership for any reason, they can do so without that partner’s consent if allowed in the Partnership Agreement.
• Distribution of intellectual property and other rights following termination,
• Non-competes: The length of time a partner is prohibited from competing against the partnership after withdrawal

Tax Implications of Partnership Structures

Different partnership structures in the UK—general partnerships, joint ventures, and limited liability partnerships (LLPs)—have distinct tax implications based on their legal and operational setups.

In a general partnership, the partnership itself is not a taxable entity. Instead, profits or losses are passed through to the individual partners, who are taxed on their share of the profits.

• Profit Allocation: Partners report their share of profits on their personal self-assessment tax returns, regardless of whether they withdraw the funds.
• Tax Rates: Partners pay income tax based on their total income and also pay Class 2 and Class 4 National Insurance Contributions (NICs).
• No Corporation Tax: The partnership avoids paying corporation tax, simplifying its tax obligations. This structure ensures flexibility but requires accurate record-keeping for profit distribution.

Joint Venture (JV)

The tax treatment of a joint venture depends on its structure:

• Separate Legal Entity: If the JV is structured as a limited company, it pays corporation tax on its profits. Participants may then be taxed on dividends or income received from the JV.
• Contractual JV: If the JV operates under a contractual agreement, profits and losses are usually passed through to the participants, who pay tax individually on their share. This resembles general partnership taxation but varies based on the agreement.

Limited Liability Partnership (LLP)

An LLP is treated as a partnership for tax purposes but operates as a separate legal entity.

• Pass-Through Taxation: Like general partnerships, LLPs do not pay corporation tax. Instead, partners are taxed individually on their share of profits.
• Flexibility: Profit-sharing arrangements in the LLP agreement determine individual tax liabilities. While offering limited liability, LLPs maintain the tax transparency of traditional partnerships.

Understanding these distinctions is vital for compliance and efficient tax planning.

Conclusion

Each type of partnership contract is tailored to a specific business relationship and carries distinct legal, financial, and operational implications. Selecting the right contract and ensuring precise terms are critical to minimizing risks and fostering successful collaborations.