Partnership Agreement UK: The 1890 Act Rules & What to Include

At a glance

• What it is: a partnership agreement is a written contract between two or more people carrying on a business together with a view to profit (Partnership Act 1890, s.1) that displaces the Act's default rules with terms the partners actually chose.
• Without one: the Partnership Act 1890's defaults apply automatically — equal profit and loss shares regardless of contribution, no salary for working partners, equal management rights, and a partnership that any partner can end by giving notice (ss.24, 26, 32).
• Liability: partners are personally, and jointly, liable for the firm's debts under section 9 of the 1890 Act — unlimited, and reaching personal assets, unlike a limited company or LLP.
• Agency: each partner can generally bind the firm to contracts made in the ordinary course of business, even without the other partners' knowledge or consent (s.5).
• Alternatives: an LLP (Limited Liability Partnerships Act 2000) is a separate legal entity registered at Companies House that limits members' liability; a limited partnership (Limited Partnerships Act 1907) keeps at least one general partner with unlimited liability alongside limited partners.
• Tax: a partnership is not taxed directly — each partner is taxed individually via Self Assessment, and the nominated partner must also file an annual Partnership Tax Return (SA800) with HMRC.

What this document is

A partnership agreement is a private, written contract between two or more people who are running a business together with the aim of making a profit. It records what the partners have agreed between themselves — capital contributions, how profits and losses are split, decision-making and management rights, drawings, how new partners join, how existing partners leave, and what happens if the partnership ends.

You do not need a written agreement for a partnership to exist. Under section 1 of the Partnership Act 1890, a partnership is simply "the relation which subsists between persons carrying on a business in common with a view of profit." Two people sharing the workload and the takings of a business can already be partners in law, whether or not they have ever called themselves that or signed anything.

Without a written agreement, the relationship is governed instead by the default rules in the Partnership Act 1890. Those defaults are rigid and were designed for a Victorian economy — profits and losses are shared equally regardless of who put in more money or does more work, no partner can be expelled without an express power to do so, and any partner can bring the whole partnership to an end simply by giving notice. Most partners find those outcomes do not match what they actually want.

A bespoke agreement replaces the defaults with terms that fit the business, giving everyone clarity on their rights and obligations and reducing the risk of disputes later on. It also keeps arrangements private — a partnership agreement is not filed anywhere public, which is one reason many smaller or professional businesses still choose this structure over an LLP or a company.

Why the 1890 Act's defaults rarely work for real partnerships

Section 24 of the Partnership Act 1890 sets out the rules that apply "subject to any agreement express or implied between the partners" — meaning they only bite where the partners have not agreed something different. The main defaults are:

• Equal shares. All partners share equally in capital and profits, and must contribute equally to losses, regardless of how much money or work each one puts in.
• No interest on capital, but interest on excess advances. A partner is not entitled to interest on the capital they agreed to subscribe, but is entitled to 5% interest on any payment or advance made beyond that agreed amount.
• No salary. No partner is entitled to be paid for working in the business — profit share is the only reward, by default.
• Equal management rights. Every partner may take part in managing the business.
• Unanimous consent for new partners. No one can be introduced as a partner without the consent of every existing partner.
• Majority decisions, with limits. Ordinary business decisions can be settled by a majority, but no change can be made to the nature of the partnership business itself without everyone's consent.

Each of these can be varied by agreement — and in most real partnerships, at least one of them needs to be. A partner who contributed most of the start-up capital, or who works full-time while another works part-time, will usually want the agreement to reflect that rather than defaulting to an equal split.

Unlimited liability: what section 9 actually means

The most consequential default is liability. Section 9 of the Partnership Act 1890 makes every partner jointly liable with the other partners for all the debts and obligations the firm incurs while they are a partner — and, after a partner dies, their estate can remain liable for what is still unpaid. For wrongful acts, breaches of trust, or money and property misapplied by the firm, sections 10 and 12 go further and impose joint and several liability, meaning a claimant can choose to pursue any one partner for the whole loss and leave that partner to seek contribution from the others.

In practice, this means a partner's personal assets — their home, savings and other property — are exposed to debts and liabilities they may not have personally caused, run up by a business partner acting within the ordinary course of the firm's business. There is no cap. This is the fundamental difference between an ordinary partnership and either a limited company or an LLP, and it is the reason many growing partnerships eventually restructure.

Agency: how one partner can bind the whole firm

Section 5 of the Partnership Act 1890 makes every partner an agent of the firm and of the other partners for the purposes of the partnership's business. If a partner does something in the usual way of carrying on business of the kind the firm does, that act binds the firm and every partner — even if the others knew nothing about it — unless the partner in fact had no authority to act in that matter, and the person they were dealing with either knew that or did not believe them to be a partner at all.

This is why internal limits on authority matter so much. A partnership agreement can restrict what any individual partner is allowed to do — for example, requiring joint sign-off above a certain contract value, or for taking on new borrowing — but those internal limits will not always protect the firm against an outsider who reasonably believed the partner had authority to act. Recording the limits clearly, and making sure anyone the firm regularly deals with understands them, reduces that risk.

Ending a partnership: expulsion, retirement and dissolution

Expulsion

Section 25 of the Partnership Act 1890 is unambiguous: no majority of the partners can expel another partner unless a power to do so has been conferred by express agreement between the partners. Without an expulsion clause, the other partners cannot simply vote a difficult or underperforming partner out — their only default route is to dissolve the partnership altogether, which affects everyone, not just the partner they wanted to remove. A well-drafted agreement sets out clear, objective grounds for expulsion and a fair process for exercising it.

Dissolution by notice — the "partnership at will" trap

If a partnership was formed for an undefined period, it is a "partnership at will." Under sections 26 and 32 of the 1890 Act, any partner can dissolve the whole partnership at any time simply by giving notice of their intention to the others. No reason has to be given, and unless the partnership was originally constituted by deed, the notice does not even need to be in writing. Dissolution takes effect from the date named in the notice, or, if none is named, from the date the notice is communicated.

This default can end a viable, profitable business overnight at the will of a single partner, and it can also force a sale or wind-down of assets that the remaining partners would rather have kept trading. Most agreements displace it by allowing the remaining partners to continue the business, setting out how a departing partner's capital and profit share are valued and paid out, adding a notice period, and including reasonable restrictions on the departing partner competing with the business afterwards.

Partnership vs LLP vs limited partnership

| Feature | Ordinary (general) partnership | Limited liability partnership (LLP) | Limited partnership (LP) | |---|---|---|---| | Governing default law | Partnership Act 1890 | Limited Liability Partnerships Act 2000 | Limited Partnerships Act 1907 | | Legal personality | None — the partners are the business | Separate legal entity, distinct from its members | None (like an ordinary partnership) | | Liability | Unlimited — partners are personally liable for the firm's debts | Generally limited to what each member has agreed to contribute | General partner(s): unlimited. Limited partner(s): capped at their contribution | | Registration | No registration needed to exist; the nominated partner must still register with HMRC for tax | Must be incorporated at Companies House before it exists | Must be registered at Companies House before it exists | | Governing document | Partnership agreement (private) | LLP members' agreement (private) | Limited partnership agreement (private) |

An LLP is created under the Limited Liability Partnerships Act 2000, which describes it as "a body corporate (with legal personality separate from that of its members)". That separate legal personality is the key structural difference from an ordinary partnership: the LLP itself owns the business assets and is liable for its own debts, while members' personal exposure is generally limited to what they have agreed to put in. LLPs are incorporated in a similar way to a limited company — there is a registration fee to pay (check GOV.UK for the current fee), and, much like appointing a director to a limited company, LLP members take on formal filing and administrative responsibilities that partners in an ordinary partnership do not have.

A limited partnership, by contrast, is registered but is not itself a body corporate in the way an LLP is. It must have at least one general partner, who manages the business and carries unlimited liability exactly as in an ordinary partnership, and at least one limited partner, whose liability is capped at the amount they contributed provided they do not take part in managing the business. LPs are used mainly for investment vehicles — such as private equity or property funds — rather than for trading businesses run by their owners day to day. There is again a registration fee (check GOV.UK for the current fee).

Whichever structure you choose, the governing agreement itself — a partnership agreement, an LLP members' agreement, or a limited partnership agreement — is a private document. Unlike a limited company's articles of association, which are filed and publicly available (see our guide on amending a company's articles of association for how that more formal process works), none of these partnership-style agreements are filed anywhere public, which is part of why many professional and family businesses still prefer them.

How partnership profits are taxed

A partnership is not itself subject to tax on its profits. Instead, each partner is taxed individually, through Self Assessment, on their share of the partnership's profits — regardless of whether that money has actually been drawn out of the business. Details of how to register and file are set out in set up a business partnership on GOV.UK.

The partnership as a whole must also be registered with HMRC, and one partner is designated the "nominated partner," responsible for registering the partnership and for filing the annual Partnership Tax Return (SA800). Registration must normally happen by 5 October in the partnership's second tax year, and each partner must register separately and file their own personal Self Assessment return as well. Deadlines, thresholds and any penalties change from year to year, so always check GOV.UK for the current position rather than relying on this guide for exact figures.

What a good partnership agreement should cover

1. The commercial basics. Who is contributing what — cash, assets, time or expertise — and how profits and losses will actually be split, rather than defaulting to the equal share in section 24.
2. Management and decision-making. Who handles which parts of the business, how often partners will meet, what records will be kept, and which decisions (taking on debt, hiring senior staff, admitting a new partner) need unanimous rather than majority agreement.
3. Authority limits. What any individual partner can and cannot commit the firm to without the others' sign-off, given that section 5 makes every partner an agent of the firm by default.
4. Expulsion. Clear, objective grounds and a fair process for removing a partner — without this, section 25 means the partners cannot expel anyone at all, however badly things have gone wrong.
5. Retirement, death and incapacity. How a partner can leave, how their share is valued and paid, notice periods, and reasonable restrictions on setting up in competition afterwards — displacing the default position that almost any change can trigger dissolution under sections 26 and 32.
6. New partners. How and on what terms someone new can be admitted to the partnership.
7. Dispute resolution. A clause requiring partners to attempt mediation or another agreed process before resorting to litigation, to avoid disputes escalating into a forced dissolution.
8. Review and variation. How and when the agreement itself can be updated, and a commitment to revisit it as the business grows or circumstances change.

Getting your agreement right

1. Agree the commercial basics first. Before anyone drafts anything, sit down with your partners and talk through contributions, profit and loss sharing, authority to bind the business, and which decisions need everyone's agreement.
2. Set out day-to-day management. Decide who handles which parts of the business, how records are kept, and how disagreements will be resolved when — not if — they arise.
3. Plan for people joining and leaving. Cover admission of new partners, retirement, expulsion, valuation of a departing partner's share, and any restrictions on competing afterwards.
4. Plan for the difficult scenarios. Death, serious illness, bankruptcy, or a partner wanting to leave on bad terms all need to be thought through upfront, so the remaining partners are not left relying on the 1890 Act's default rules at the worst possible moment.
5. Sign it, and keep it under review. All partners should sign the final document and keep a copy. Revisit it every few years, or whenever the business changes significantly — bringing in investment, opening new locations, or adding partners. An outdated agreement can be almost as unhelpful as having none at all.

This guide provides general information about how partnership agreements and partnership law work in England and Wales. It is not legal advice and is not a substitute for advice tailored to your specific circumstances. The law described was accurate as at July 2026 and is subject to change — always check GOV.UK and legislation.gov.uk for the most current position.

Last reviewed: July 2026 by a non-practising solicitor · Next review due: July 2027 or on legislative change.