Partnership Decisions

Partnership Agreement

Partner Decisions

Unless the partnership agreement says otherwise:

  • All of the partners have the right to participate in the management of the partnership;
  • ‘Ordinary’ partnership business decisions are decided by a majority of partners; and
  • Certain ‘fundamental’ decisions affecting the partnership require unanimity (such as a change in the nature of the partnership business).

Often this rule is augmented in a partnership agreement, for example to provide for voting based on the relevant partner’s capital investment or profit entitlement.

As noted above, general partnership law requires unanimous agreement in relation to certain fundamental partnership decisions. This might be seen as unduly restrictive in a larger partnership or one where partners are investing different amounts of time, capital or expertise.

It is common for partnership agreements to allow for a special majority decision of partners in such a situation – for example the requirement for unanimity may be reduced to requiring at least 75% of the partners to agree. This might apply, for example, to the introduction or expulsion of a new partner or to a change in the partnership’s business.

Binding the Partnership - Agency
A fundamental principal in relation to partnerships is that each partner is an agent of the other partners. As a consequence, each partner has the power to enter into binding commitments on behalf of the partnership, resulting in personal liability for each of the partners. In other words all partners are liable for commitments entered into by their fellow partners in the usual course of the partnership’s business.

This default position can be amended by the partnership agreement. For example, it is usual to restrict a single partner from (amongst other things) engaging employees, giving a guarantee, incurring credit or entering into a commitment above a certain financial limit.

Such limitations may not prevent a partner entering into binding agreements on behalf of the partnership, but will give the other partners the right to hold a partner to account for exceeding his authority under the terms of the partnership agreement.