If two or more people carry on a business in common with a view of profit in England and Wales, they may be in a general partnership (whether or not they have written anything down. Whether a partnership exists depends on the legal substance of the arrangement; the same people might instead be operating through a company or LLP. A partnership agreement is the document that sets the rules of that relationship. Without one, the default rules of the Partnership Act 1890 apply) and they are often not what the partners would have chosen. Here is a plain-English guide.
What is a partnership agreement?
A partnership agreement is a contract between the partners that governs how the business is run and how the partners deal with each other, capital, profit-sharing, decision-making, and what happens when a partner joins, leaves, dies or falls out.
A general partnership itself does not have to be registered anywhere (unlike a company). But note two related vehicles that do register at Companies House:
- a Limited Partnership (LP) under the Limited Partnerships Act 1907 (with general and limited partners); and
- a Limited Liability Partnership (LLP) under the Limited Liability Partnerships Act 2000 (separate legal personality and limited liability), which also files accounts.
Why you need one: the Partnership Act 1890 defaults
If you have no agreement, the Partnership Act 1890 fills the gaps, and the defaults can be unwelcome, for example:
- profits and losses are shared equally, regardless of how much capital or work each partner put in;
- no partner is entitled to a salary;
- all decisions about ordinary matters are by majority, but a change in the nature of the business needs unanimity;
- if there is no agreement for a fixed term or particular venture, the partnership is a partnership at will that can be dissolved by any partner giving notice; it is also automatically dissolved on a partner's death or bankruptcy unless otherwise agreed.
A written agreement lets you set your own terms instead, and avoids the business collapsing when one partner leaves.
What to include in a partnership agreement
- Name, business and start date.
- Capital contributions and profit/loss sharing ratios.
- Drawings and how/when profits are paid.
- Roles, decision-making and which major decisions need unanimity.
- Banking, accounts and records.
- Admitting new partners and retirement/expulsion.
- What happens on death, incapacity or a partner leaving, crucially, a clause that the partnership continues between the others (overriding the 1890 Act's automatic dissolution), with a buy-out of the outgoing partner's share and how it is valued.
- Restrictive covenants (non-compete/non-solicit), kept reasonable.
- Dispute resolution and governing law.
A key warning: liability
A general partnership does not give limited liability, partners are jointly liable for the firm's debts, and you can be liable for a partner's business actions. If liability protection matters, consider an LLP or a limited company instead.
How to make one
- Agree the key terms between the partners (capital, profit share, roles, exit).
- Have a solicitor draft or review the agreement so it is enforceable and tailored to you.
- Sign it (all partners), and review it as the business changes.
- Consider whether an LLP/LP (with Companies House registration) suits you better than a general partnership, and take tax advice (partners are taxed individually via Self Assessment).
Key takeaways
- A partnership agreement sets the rules between partners; without one, the Partnership Act 1890 defaults apply (often unwelcome, equal profits, dissolution on a partner's notice/death).
- Cover capital, profit-sharing, decision-making, admitting/removing partners, continuity and buy-out on exit, restrictive covenants and disputes.
- General partnerships carry unlimited, joint liability, consider an LLP or company if you need protection.
- Take legal and tax advice; LPs and LLPs (unlike general partnerships) register at Companies House.
Sources
- Partnership Act 1890 (default rules for general partnerships); Limited Partnerships Act 1907 (LPs); Limited Liability Partnerships Act 2000 (LLPs)
- HMRC rules on Self Assessment for partners
- General contract and partnership practice in England & Wales
--- This article is general information about the law of England & Wales as at 2026, not legal advice. For advice on your circumstances, consult a qualified solicitor or accountant.