Business partnerships - have you got a written agreement?

The owners and partners in most small and medium-sized businesses in the UK have no legal protection against a partnership bust-up, according to figures released this week by O2 and the Law Society.

In response, the network and the Society have come together to provide access to free legal information and advice designed to protect SMEs in the event of a dispute. The campaign, which includes a service offering free legal advice and a comprehensive information pack, also includes the basis of an ‘SME-nup’, an agreement for business partnerships.

Many partnerships forged on trust alone

The launch of the campaign follows feedback from research among O2's small business customers and a survey of the Law Society's members, which found that over one-third of their SME client base did not have a current partnership agreement.

Goodwill at the start of the relationship is often considered enough, with over two-thirds of the smaller SMEs questioned revealing that their partnership is based on a handshake and trust rather than any kind of written contract. SMEs whose partners are family members were revealed as the least likely to have signed a legally binding partnership agreement.

Feedback from solicitors revealed that the absence of the correct legal protection can cost businesses thousands of pounds in the event of a dispute, while preparing the adequate paperwork can cost as little as £100.

The findings come at a time when new business start-ups are at record levels in the UK, despite a slowing economy. 2007 saw the number of new businesses increase by 3 per cent, the highest level in 20 years, with growth expected to continue throughout 2008.

Available online, the SME-nup covers the common areas of contention, including the agreeing of business financing, identifying the contribution of assets between partners, and managing the transfer of partnership interests.

Partnership Agreement Basics

While legal documentation is bespoke to each SME, feedback from solicitors has identified the following areas as forming the basis for a partnership agreement:

1. Business of the partnership
2. Financing the business
3. Contribution of assets
4. Transfer of partnership interests
5. Rights to take a part in management
6. Rights of ‘sleeping’ partners
7. Administration
8. Profit distribution

You can download the SME pre-nup (PDF) here. Simply download the document, take it to your solicitor and it will form the basis of a business partnership agreement.