Contents of a partnership deed: parties, duties, profit sharing and signing as a deed

What is usually found in a partnership deed, and what should you include to avoid legal issues? In my experience there are three things you will find in almost every partnership deed: the parties, the duties of the partners, and how profits and losses are shared. There is also a signing formality that is specific to deeds and often gets missed. Below I go through each of these and then briefly compare the three main types of partnership in the UK.

Parties to a partnership deed: partners vs LLP

The first thing in any partnership deed is the parties. Who they are depends on the kind of partnership.

In a general partnership, the parties will simply be the two or more partners. There is no separate entity to add.

In a limited liability partnership it can be different. You might have the partners and the LLP itself as parties to the partnership agreement. That has a practical consequence: because the LLP is a party, the LLP itself can bring claims and sue for damages and breach of contract against any partner who has breached the partnership deed. The claim belongs to the business, not just to the other individual partners. So when you are checking who the parties are, think about whether the partnership itself should be one of them.

Partners' duties

Secondly, you will find the duties of the partners detailed in the partnership deed. These duties can take two forms:

• General duties owed towards the partnership and the rest of the partners, which apply to everyone.
• Specific duties regarding a particular partner and what they must do for the partnership, for example where one partner is responsible for a particular part of the business.

Setting these out clearly means each partner knows what is expected of them, and gives the others something to point to if a partner is not pulling their weight. Vague duties are a common source of partnership disputes, so be specific where you can.

Profit and loss sharing between partners

Thirdly, you should find how profits and losses are to be shared amongst the partners. This is the clause people care most about, and it is also the one that has a default rule if you leave it out: if profit and loss sharing is not detailed in the partnership deed, then profits and losses are shared equally amongst the partners.

That default suits some partnerships and not others. If one partner has put in more capital or does more of the work, equal sharing may not be what anyone intended, so the deed needs to say what you actually agreed.

Signing as a deed: witness details

As a bonus point, if the document is indeed a partnership deed, meaning it has been executed as a deed rather than signed as a simple contract, you will find something extra in the signature section: the details of the witnesses for each of the partners.

A deed is a contract that is executed as a deed, meaning it is witnessed. For each witness you should have:

• their full name;
• their residential address; and
• their occupation.

Those details are there so the witness can be easily identified later if there is ever a question about whether the deed was properly signed. If the signature blocks have no witness details at all, the document may be a partnership agreement signed as a simple contract rather than a deed.

Types of partnership: general, LP and LLP

As a rapid summary, these are the three main types of partnership in the UK.

• General partnership. It is not incorporated, so it is not a separate legal entity, and all of the partners have unlimited liability.
• Limited partnership (LP). It is also not incorporated and so is not a separate legal entity, but it has at least one partner with unlimited liability and at least one partner with limited liability.
• Limited liability partnership (LLP). It is incorporated and therefore a separate legal entity, registered at Companies House, and all of the partners have limited liability.

Which type you have changes who the parties to the deed are and how much personal risk each partner carries. For more detail, see what is a partnership and what is an LLP. If you are drafting from scratch, how to write a business partnership agreement covers what to agree with your partners first.

Next steps

Check your partnership deed for the three essentials: the right parties, clear duties for each partner, and an express profit and loss sharing clause so you are not left with the equal-split default by accident. If it is to be executed as a deed, make sure every witness's name, address and occupation is recorded. If you are unsure whether the document fits your type of partnership, have a corporate solicitor review it before it is signed.