The Partnership Agreement You Didn’t Sign Could Cost You Your Business

Written by Helen Lyne, Senior Consultant Dispute Resolution Lawyer, Setfords Published: 4 August 2026, Last reviewed: 4 August 2026, Read time: 8 minutes

Plenty of people go into business together without ever signing a partnership agreement, assuming they’ll work things out if a problem comes up. That’s usually the moment they discover the law already decided the rules for them, years earlier.

Key takeaways

• Without a partnership agreement, the Partnership Act 1890 fills the gap, and its default rules are often stricter than partners expect.
• Profits and losses are split equally by default, regardless of how much money or work each partner put in.
• Any partner can dissolve the entire partnership by giving notice, unless the partners agreed otherwise.
• Partners are personally liable for the partnership’s debts. There’s no separate legal entity shielding personal assets, unlike a limited company.
• A partnership agreement, even a short one, can override most of these default rules and prevent the worst surprises.

If you and someone else run a business together with a view to profit, you’re a partnership in law, whether or not you ever signed anything. Without a written agreement, the Partnership Act 1890 supplies the missing terms automatically.

Those default terms are rarely what you’d have chosen for yourselves. Profits are split equally regardless of contribution, and either of you can end the whole partnership at will. You’re also both personally liable for the partnership’s debts.

None of this is unusual or a sign anything’s gone wrong with your business. It’s simply what the law assumes unless you’ve agreed something different in writing.

What this can look like in your business

Say you put in £100,000 to help get the business started. Your partner puts in very little money, but is the one running things day to day for years afterwards. Without a written agreement, the law still splits the profits equally between you, regardless of what each of you originally put in.

That tends to come as a real surprise to whoever put in the capital, and it’s an entirely predictable one. It’s exactly the default position the Partnership Act 1890 puts partners in unless they’ve agreed otherwise.

Why personal liability is the bigger risk

The profit-split example above is one risk. Personal liability is often the bigger one. Unlike a limited company, a partnership doesn’t protect your personal assets from the business’s debts.

What is joint and several liability? If the partnership owes money, whoever’s owed it can chase any one partner for the full amount, not just their share. Say the partnership owes a supplier £50,000. That supplier can pursue you personally for the whole £50,000. It doesn’t matter if your partner ran up the debt, or if the two of you were meant to split it equally.

This applies to debts run up while you’re a partner, whether or not you personally agreed to them.

Key figures

Section 24 (equal shares) · Section 26 (dissolution by notice) · Section 33 (dissolution on death)

Here’s what the law says. Section 24 of the Partnership Act 1890 sets the default financial rules, including an equal split of profits and losses. Section 26 lets any partner dissolve a partnership at will simply by giving notice to the others. Section 33 goes further still: a partnership is automatically dissolved if any partner dies or becomes bankrupt, unless the partners agreed otherwise.

(These are the default rules under the Act, not fixed outcomes for every partnership. Confirm how they apply to your specific situation with your solicitor, since conduct between partners can sometimes vary these rules by implication.)

What the law says without an agreement

The Partnership Act 1890 sets out a full set of default rules. The ones that catch partners out most often are:

• Equal profits and losses. Every partner shares equally, regardless of how much capital or work they contributed.
• No pay for running the business. A partner who does most of the day-to-day work isn’t entitled to a salary or extra share for it.
• Unanimous consent for a new partner. No one can be brought into the partnership unless every existing partner agrees.
• Majority rules for day-to-day matters, but not for everything. Ordinary business decisions can be settled by a majority, but changing the nature of the business needs everyone’s consent.
• No power to expel a partner. Unless the partners agreed otherwise, there’s no way to remove a partner against their will, however difficult they become.
• Dissolution at will. Any partner can end the partnership at any time, simply by telling the others.

What is a partnership at will? A partnership with no fixed end date or term. Without an agreement saying otherwise, every ordinary partnership is one of these, which is exactly what allows any single partner to dissolve it on notice.

What happens if the partnership dissolves

Dissolution ends the partnership, but it doesn’t end the partners’ obligations overnight. There’s a winding-up process to follow, and it can take time.

• Assets are used to pay debts first. Under section 44 of the Act, the firm’s assets pay off outside debts before anything is returned to the partners.
• Capital is repaid next. Once outside debts are cleared, each partner gets back the capital they put in.
• Any surplus is split by profit share. Whatever’s left is divided in the same proportions the partners shared profits, by default equally.
• Partners stay liable for existing debts. Dissolution doesn’t erase debts the partnership already owed, and partners remain personally on the hook for them.
• Third parties need proper notice. Clients, suppliers, and lenders should be told the partnership has ended, or they may still be able to treat a former partner as bound by the firm’s actions.

How partnership disputes are usually resolved

1. Negotiation. Many disputes settle once both partners understand what the default rules say, since that alone often changes expectations.

1. Mediation. An independent mediator can help partners agree an exit or a wind-down without the cost of formal proceedings.

1. A claim for an account. Either partner can ask the court to formally establish what’s owed to whom, based on the partnership’s finances.

1. A dissolution claim. Where partners can’t agree, the court can dissolve the partnership itself, including on just and equitable grounds where trust between the partners has broken down.

What slows things down

No written agreement to point to. Without one, every question has to be answered by reference to the Act itself, which takes longer to work through than a clear contractual term.

Disorganised financial records. Working out what each partner is owed on dissolution depends on accurate accounts, and gaps in the records can delay a fair settlement.

Disagreement over what was agreed verbally. Partners sometimes believe they varied the default rules in conversation, but proving that in court is difficult without something written down.

What helps

Get your accounts in order early. Clear, up-to-date financial records make it far easier to agree what each partner is owed.

Put a partnership agreement in place, even now. Think of it as a business pre-nup: not a sign you expect things to go wrong, just a plan for what happens if they do. It’s never too late to agree one, and doing so can resolve a live dispute as well as prevent future ones.

Try mediation before issuing a claim. A neutral third party can often help partners reach a fair exit faster than the court process would.

What happens next depends on your specific circumstances and what, if anything, was agreed between you. Speak to our partnership disputes team for a confidential, no-obligation conversation about your options.

Common mistakes

1. Assuming profit share should match contribution. The law defaults to an equal split regardless of input, so check the actual position before relying on what feels fair.

1. Believing a difficult partner can simply be removed. Without an agreement, there’s no default power to expel a partner, so get advice before assuming this is an option.

1. Not realising any partner can dissolve the business. A single partner giving notice can end the whole partnership, so treat this risk seriously rather than dismissing it.
3. Continuing to trade informally after a serious falling out. Debts and liabilities keep building while the dispute drags on, so get advice early rather than letting things continue unresolved.

When to speak to a solicitor

If you and your business partner have fallen out, and there’s no written agreement between you, understanding your actual legal position early makes a real difference. This is useful whether or not you go on to instruct Setfords.

Speak to a solicitor if:

• You and your business partner disagree about how profits or losses should be split.
• One of you wants to leave the business, or wants the other one to leave.
• You’re not sure whether you’re legally a partnership at all.
• A partner has threatened to dissolve the business, or you’re considering doing so yourself.
• You want to put a partnership agreement in place, even after a dispute has started.

What to bring to your first conversation

Having the right information ready makes your first conversation with a solicitor far more useful. Gather together:

• Any written partnership agreement, even a partial or unsigned draft.
• Recent partnership accounts or bank statements.
• Emails or messages showing how profits, roles, or decisions were handled.
• Details of what each partner originally put into the business.

FAQs

How do I know if I’m legally in a partnership?

If you and someone else are running a business together with a view to making a profit, you’re likely a partnership, whether or not you signed anything. Sharing profits, making joint decisions, and presenting yourselves as a single business are all signs the law may already treat you as partners.

Can one partner really dissolve the whole business alone?

Yes, if there’s no written agreement saying otherwise. Most ordinary partnerships are “at will,” meaning any partner can dissolve the whole thing simply by giving notice to the others.

Am I responsible for debts my business partner ran up?

Generally, yes, provided the debt was incurred in the ordinary course of the partnership’s business. Partners are jointly and severally liable, so a creditor can pursue any partner personally for the full amount.

Can I get a bigger profit share because I did more work?

Not automatically. Without an agreement saying otherwise, the default rule is an equal split regardless of effort or capital contributed. Courts have generally been reluctant to imply anything different without clear evidence.

Is it too late to get a partnership agreement once we’ve already fallen out?

No. A partnership agreement can still be useful even during a dispute, since it gives both partners a clear framework for resolving things and continuing, or for a clean exit. It’s better to agree one late than never.

If you’ve fallen out with a business partner, speak to our team for a confidential, no-obligation conversation.

About the author:

This article is general information about partnership disputes in England and Wales and is not legal advice. The law can change and every situation is different, so please speak to a qualified commercial disputes solicitor about your circumstances.