Partnership Agreement in the UK: Template and Key Clauses (2026)

A partnership agreement in the UK sets out how two or more people running a business together will share profits, make decisions, contribute capital and handle someone joining or leaving. It matters more than many founders realise, because if you do not have one, the law writes the rules for you. The Partnership Act 1890 supplies default terms, and several of them, such as sharing profits equally no matter what each partner put in, often do not match what the partners actually intended. This is general information, not legal advice. Partnership and tax rules are involved, so take advice before you set the structure. ## Why the default rules catch you out Without a written agreement, the Partnership Act 1890 applies. Under it, profits and losses are shared equally even if partners contributed different capital or do different amounts of work; no partner is entitled to a salary; every partner has an equal say; and, most strikingly, the partnership can be dissolved by any partner giving notice, or automatically on the death or bankruptcy of a partner. That last point means a two person partnership can be ended by one partner walking away, taking the whole business down with it. A written agreement replaces these defaults with terms you choose. ## Ordinary partnership or LLP Decide the structure first. In a traditional partnership under the Partnership Act 1890, the partners have unlimited personal liability for the firm's debts. A limited liability partnership, formed under the Limited Liability Partnerships Act 2000, is a separate legal body that files at Companies House and gives its members limited liability, but it has more administration and public filing. The agreement for an LLP is usually called an LLP members agreement and does a similar job to a partnership agreement. ## Key clauses, clause by clause 1. Name and business. The firm name, what the business does, and where it operates. 2. Partners and commencement. Who the partners are and when the partnership started. 3. Capital. How much capital each partner contributes, whether it earns interest, and how it is returned on exit. 4. Profit and loss sharing. How profits and losses are divided. This overrides the equal sharing default, so set the shares you actually agreed, whether by capital, by role or by a fixed split. 5. Drawings and salaries. Whether partners can draw money monthly against profit, and whether any partner has a prior share or salary for extra work. 6. Decision making. Which decisions need unanimity and which a majority, and how votes are counted. Protect against deadlock in a two partner firm. 7. Banking and accounts. Who can sign, how accounts are kept, and the accounting date. 8. Admitting new partners. The process and consent needed to bring in a new partner. 9. Retirement, expulsion and death. How a partner can retire, the grounds and process to expel one, and what happens on death or incapacity. Crucially, state that the partnership continues among the remaining partners rather than dissolving. 10. Paying out a departing partner. How to value and pay a leaving partner's share, over what period, to protect the firm's cash flow. 11. Restrictive covenants. Reasonable non compete and non solicitation terms on a partner who leaves, no wider than necessary. 12. Dispute resolution and governing law. How disputes are resolved, often by mediation first, and the governing law. ## Tax and registration note A partnership itself does not usually pay tax on its profits; instead each partner is taxed on their share, and the partnership must register with HMRC and file a partnership return. An LLP also files accounts and a confirmation statement at Companies House. Confirm the current registration and filing duties for your structure before you start trading. ## Common mistakes to avoid - Having no written agreement, so the Partnership Act 1890 defaults apply and any partner can dissolve the firm.

• Equal profit shares that ignore unequal capital or work.
• No continuation clause, so the firm dissolves when a partner leaves or dies.
• No agreed way to value and pay out a departing partner, causing a cash crisis.
• No deadlock mechanism in a two partner firm.
• Confusing an ordinary partnership with an LLP and misjudging personal liability. ## Keeping decisions and money clear Many partnership disputes are really about money and who decided what. Set out clearly how much each partner can draw each month, when profits are calculated and distributed, and which decisions one partner can take alone versus those needing all partners to agree. Writing these everyday rules down prevents the slow build up of resentment that ends more partnerships than any single dramatic disagreement. ## Keeping the agreement current as the firm changes A partnership agreement needs updating whenever a partner joins or leaves, profit shares change, or capital moves. The agreement, the accounts and the firm's filings must stay consistent, and the partners must be able to show the current signed version. When the document lives in one person's drive and email, it drifts out of date and a leaver or a new partner is handled without the right terms. Adira is an AI workspace, built on Claude, where you can draft a partnership or LLP members agreement from a tuned template, review the profit share and exit terms for risk, sign it electronically, and keep every version in one place, with public per seat pricing and a 7 day trial. It is India first and global capable, and a command centre view of the firm's obligations is on its roadmap. The lasting point stands without any product: put the agreement in writing, override the defaults you do not want, and keep a continuation and payout clause so the firm survives a partner leaving.