When two or more parties engage in business together with a view to profit, the law will find that a partnership exists whether or not there is a written agreement in place, and whether or not the parties intended to form a partnership. In the absence of a written agreement setting out the terms of the partnership, the law provides those terms in the form of the Partnership Act 1890 ("the 1890 Act").
This can lead to many unintended consequences for business people, as many of the terms of the 1890 Act no longer meet the expectations of modern business. For example, under the 1890 Act a partner cannot be expelled, any partner may dissolve the whole partnership, and the death or retirement of a partner causes automatic dissolution.
Therefore, it is crucial to prepare a written Partnership Agreement to set out terms suitable for your business and your partners, even if your business partners include family members and/or close friends. A Partnership Agreement can be used to define the responsibilities of each partner, and defines the level of control or voting strength each partner will have over the business.
Partners can have equal voting rights or, alternatively, a General Partnership can be structured in such a way that one partner is solely responsible for managing the business while the other partner(s) takes a more passive role and just provide(s) capital; a person in this role is commonly known as a silent partner.
Partnerships are often of indefinite duration and endure as long as business is profitable and there are partners to run it. However, some partnerships are established as fixed term partnerships with specific time limits or short-term project time frames built into the agreement where the lifespan of the partnership is predetermined.