Retirement and New Partners in Partnership Agreements

Last Updated
July 21, 2010

16) Retirement

In the event of a partner retiring, you should agree to a retirement package and how the business will continue to be run. You may decide that the share of the business from the retiring partner will be distributed evenly between the remaining partners.

If not, you will have to state how the share will be divided. The retirement package may include a cash pay out of, say, their share of the value of the assets and will be paid out in monthly instalments over a period of, say, 18 months. You should also specify the minimum time for a partner to hand in their notice of retirement.

Example: “A partner may retire when a written notice of at least two months has been sent to the business address prior to their intended retirement date. The ownership of the business will be passed onto the remaining partner at the date of retirement. The retiring partner will receive a share of the business assets, not including goodwill, and will be calculated by their ownership in the business. This asset figure will be taken from the previous years accounts that have been drawn by the business accountant. This share will be paid in a cash settlement to the retiring partner in instalments of 25 percent at three months, six months, nine months and twelve months”.

17) The introduction of new partners

At some point you may decide to introduce another partner in to your business. In such case, you should specify the terms and conditions of doing so which may initially be the agreement of all partners to acknowledge that a new partner is welcome. You may then suggest the amount of capital that the new partner needs to invest into the business and the rights and benefits that they will receive from doing so. Example: “A new partner will be admitted with the agreement of all partners. The amount of capital to be invested by the new partner will be decided at the time of admission as too will the rights and benefits”.

18) Drawings and direct expenses

This will state the amount of money that each partner can draw from the business (wages and benefits) each week and the time at which this figure will be reviewed, say, at the end of every financial year. You may also add a solution if this figure cannot be paid out by the business, say, each partner will have a share of what the business funds can afford. You will also state a limit as to the amount of expenses each partner can draw from the business that are classed as direct costs such as transport fees (petrol, etc) or accommodation (for business meetings in other areas, etc). This figure may also be up for review periodically. Example: “Each partner can draw a maximum of GBP350 per week covering wages and benefits. If this amount cannot be met by the business, it will be reduced to the amount that can be met by the business funds. If any partner decides to keep any of their drawings in the business, they will be entitled to interest that will be payable in relation to the current interest of the business bank account. Each partner can draw a maximum of GBP30 per week for expenses covering motor fuel for business related purposes only. These figures are subject to change with the consent of all partners”.

19) Dissolution of the partnership

If your partnership ceases to trade, then you need to determine how the business will be split between all partners. This will be a split of the money after all remaining stock, assets and equipment have been sold. You may decide that the split will be dependent of the ownership of the business (as stated in section 7) and therefore the partner(s) with more ownership will receive a higher payout. Usually, all proceeds are split evenly especially if the ownership is divided this way. Example: “The partnership will cease trading with the agreement of all partners. On doing so, any contributions (listed in 6 will be returned to the respective partners and all assets are to be sold and split between at the rate stated in section 7″.

Article Index

  1. Partnerships & Partnership Agreement Form
  2. How to Write a Partnership Agreement Form
  3. Ownership and Voting Rights in a Partnership Agreement
  4. Accounts and Cash Management in Partnership Agreements
  5. The Partnership Agreement 4
  6. Dismissal in a Partnership Agreement
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