The Vital Importance of Partnership Agreements

When starting out in business with a friend, colleague or relative, it is easy to think that everything will continue remain as pleasant and smooth running for the long term as it is at the beginning.

However, it is important to realise that business partnerships can go wrong. Relationships can turn sour for all sorts of reasons, in particular where things like the obligations and duties and financial input of each partner are not clearly defined.

The most common reason for a business partnership to fail is a lack of a written partnership agreement. What you may not realise is, when you go into business with one or more other people, even without a formal set-up, your association is likely to still be seen as a partnership in the eyes of the law. The implications of this are significant, in particular if a disagreement arises or one of the partners wants to – or has to – leave.

Taking a Step Back

There is always a ‘honeymoon’ period at the start of any relationship, and that applies to business partnerships too. Whilst you are swept up in the excitement of starting a new venture, the thought of any disagreements arising could not be further from your mind, and you probably won’t even consider a time when you or one of the other partners may wish to, or be forced to leave the business.

However, you should take a step back and consider various scenarios. What if an opportunity came up for you to relocate to another country and it just wouldn’t be viable to continue as a partner? You wish to leave, but there is no clear agreement as to what the business owes you, or what will happen to your shares. And here’s another possibility: what if one of the partners becomes ill, or passes away? Without a formal agreement in place that allows you first right to buy out their side, you could find yourself in business with their widow.

These are just two of many situations that can and do happen in business life. Precisely why it is imperative you set up legally binding, professionally drafted partnership agreements. The best time to do this is when everyone is getting along: so put it at the top of your to-do list.

What’s in a Partnership Agreement?

A good partnership agreement will include responsibilities, roles, salaries and other details concerning financial arrangements as well as exit strategies. The agreement should set out how the partnership would be dissolved in the event of one or more of the partners deciding they wish to leave, and what would happen should someone be forced to back out, or pass away. Of course these are difficult subjects to broach, but a frank discussion at the outset will help to avoid any upsetting and undesirable situations in the future.

Limited Liability Partnerships: You Still Need a Partnership Agreement

If you are setting up as a limited liability partnership (LLP) and assume this means everything is taken care of, you should be aware that without a written partnership agreement in place, should something go wrong the Limited Liability Act 2000 (LLPA) will apply. Some of the provisions of this Act may not be considered fair, such as the ability to expel a member against their wishes.

Setting up a new business partnership? Talk to your bookkeepers in the first instance about your financial position and the best way to formally set up your new business. Then take legal advice from recommended lawyers who specialise in partnership agreements. It’s the wisest move you’ll make in your new venture. 

Employment Law Changes April 2015

The spring is the bearer of brighter weather, but of course we all know it also means a raft of new legislation is introduced that has us all doing a spring clean of our employment policies and procedures.

This year sees possibly one of the most far-reaching and complex regulation changes to date: shared parental leave and pay rules which offer greater flexibility for parents in how they share the care of their child during its first year. There are also changes to adoption leave and pay, extended rights for parents to take unpaid parental leave, new rates of various types of statutory pay, changes to employer National Insurance contributions and limits on tribunal awards will be introduced.

Here we take a brief look at each of the changes coming in this month. For further information or advice you should speak either to your bookkeepers or legal or HR advisers.

Shared Parental Leave and Pay

We wrote about this in detail at the beginning of this year and you can refresh your memory of the new laws and how to prepare for them here: Get Ready for the New Shared Parental Leave and Pay Rules. In a nutshell, The Shared Parental Leave Regulations 2014 permit employees to share up to a year’s leave between mother and father. It is available to couples with a baby due or placed for adoption on or after 5 April 2015. Mothers are still entitled to 52 weeks’ maternity leave and 39 weeks’ statutory maternity pay and fathers still have their two weeks’ ordinary paternity leave and pay. However, parents will now be able to share the mother’s maternity leave and pay as she will have the right to end her maternity leave and pay early and share the untaken balance with the father.

Adoption Leave and Pay

The Paternity and Adoption Leave (Amendment) Regulations 2014 come into force on 5 April 2015, bringing in significant changes to adoption leave. These include statutory adoption pay coming into line with statutory maternity pay at 90% of average weekly earnings for the first size weeks. New rights will apply for local authority foster parents who are intending to adopt. There is new protection for employees against discrimination or dismissal due to taking time off for adoption appointments. And parents who have a child through a surrogacy arrangement will also become eligible for adoption leave. These are just a few of the new rules under the banner of adoption leave and pay.

Unpaid Parental Leave

Parents of children under the age of 5, or 18 if the child is disabled, currently have the right to take unpaid parental leave. However, as of 5 April 2015, this right is extended to all parents with children under the age of 18.

New Rates of Statutory Pay

Statutory maternity, paternity pay and adoption pay increases from £138.18 per week to £139.58 per week from 5 April 2015. Statutory shared parental pay will also be set at the same rate of £139.58 per week. From 6 April 2015, the standard rate of statutory sick pay will rise from £87.55 per week to £88.45 per week.

National Insurance Contributions

In an aim to encourage the employment of younger people, from 6 April 2015, the Government is abolishing National Insurance contributions for employees under the age of 21 whose earnings stay below the upper earnings limit.

Tribunal Awards & Statutory Payments

The maximum award for unfair dismissal compensation will rise from £76,574 to £78,335 as of 6 April 2015. When calculating statutory redundancy pay and other awards, for example for unfair dismissal, the maximum amount of a week’s pay will increase from £464 to £475.

Now is the time to update your policies and procedures, and also to talk to your bookkeepers about any effects the new regulations will have on your cashflow and bottom line.

The Small Business, Enterprise & Employment Act 2015

The Small Business, Enterprise & Employment Bill was introduced to Parliament in June 2014 and received Royal Assent on 26 March 2015.

The Act has the intention of fostering and encouraging entrepreneurial spirit in the UK, and will impact upon a number of company and employment law matters. Smaller, privately owned companies are likely to experience the greatest impact, in particular when it comes to company transparency and accountability, as such measures have traditionally only been aimed at large publicly listed organisations.

The Act represents one of the most far reaching changes to business processes and the administration of private companies since the Companies Act 2006.

The parts of the Act concerning corporate transparency, company filings and amendments to the directors’ disqualification regime will start to become law in a staged process during the next year. The purpose of this post is to set down key dates that are likely to be of importance to small to medium sized private businesses.

The Act: Key Dates for Your Diary

By May 2015: Companies will no longer be able to issue ‘bearer shares’. These are unregistered shares owned by whoever has physical possession of them. Any that already have them will have a nine month period of grace to convert them to registered shares.

October 2015: ‘Corporate directors’ will be abolished. These are one company acting as a director of another. From October, all directors will have to be ‘real’ people. There will be exceptions to the rule, but these are not likely to affect smaller businesses. Measures aimed at helping to resolve director and registered office disputes will also be introduced.

January 2016: It will become necessary for companies to start keeping a register of people who have significant control. This will be known as a PSC register and the information will need to be filed with Companies House as of April 2016. The Government is still in the process of seeking a higher level of clarity on how PSC registers will work in practice, but the changes will still affect all companies within the next year.

April 2016: Annual returns will be replaced with a simpler confirmation statement and changes concerning the statement of capital income will come into force. Also at this time, companies will be able to opt out of keeping certain statutory registers, instead taking up the option of keeping information on public registers.

Reducing Red Tape

One of the key aims of the Small Business, Enterprise & Employment Act was to make it easier to set up and administer a company: in other words, to reduce red tape. Systems will be put in place to ensure companies can fulfil all the legal obligations digitally, and there will be more flexibility when it comes to confirming the accuracy and completeness of company information at any given point during the year.

Whilst they will take some getting used to, we believe the changes brought in by the Act will benefit smaller companies in the long run. If you are in any doubt as to how the changes brought in by the Act will affect your business, your bookkeepers will be able to help.