Partnerships are a common way of conducting business in Ireland and are important as they relate to taxation, accounting and disclosures. Partnerships occur between at least two people conducting business together, with a view to making a profit, who do not form a company. Often people are in a partnership without even knowing it, which can have very serious consequences, as partners are jointly liable for any debts incurred in the course of the partnership (joint and several Liability).
This makes the need for a written partnership agreement in any partnership critical to ensure the smooth running of the partnership and allow the wishes of the partners be carried out throughout the lifecycle of the partnership.
If you don’t have a written agreement, then the Partnership Act of 1890 (Act) governs the relationship between the partners. In determining whether a partnership does or does not exist, regard shall be had to the following rules, according to the Act, which state in part:
- Joint tenancy, tenancy in common, joint property, common property, or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof.
- The sharing of gross returns does not of itself create a partnership, whether the persons sharing such returns have or have not a joint or common right or interest in any property from which or from the use of which the returns are derived.
- The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but the receipt of such a share, or of a payment contingent on or varying with the profits of a business, does not of itself make him a partner in the business.
The Act outlines a range of partnership rights and requirements and makes clear that when a partnership has no written partnership agreement, the partnership is governed by the Act, which means that:
- there is no right to remove a partner;
- any of the partners may move to dissolve the partnership;
- if a partner dies, the firm automatically dissolves;
- there is no power to resign under the Act, although a partner can retire by dissolving the partnership.
Also, the Act does not prevent a former partner from competing with the firm after he or she departs, which is just one example of why it is crucial for modern partnership agreements to contain non-compete agreements, for, generally, a maximum of two years.
Contact a Tully Rinckey Ireland Solicitor for guidance in drafting your written partnership agreement today—it is critical to the ensure the smooth running of your partnership and ensures the wishes of the partners are carried out throughout the partnership.
To schedule an initial consultation, contact us 24 hours a day, 7 days a week, at +353 1 963 7000 or firstname.lastname@example.org.