The owners and partners in the majority of small and medium-sized businesses in the UK have no legal protection against a partnership bust-up, according the Law Society and O2.
The research into Law Society members and O2's small business customers found that goodwill at the start of a business relationship is often seen as enough of a commitment.
Over two-thirds (68%) started their business on trust and a handshake rather than a written contract, with those organisations where partners are family members the least likely to sign a legally binding partnership agreement.
"People don't go into business together expecting to fall out so it's all too easy for them to fail to take the correct legal precautions or seek sound advice before launch," said Andrew Holroyd, president of the Law Society.
"Such a large number of small businesses operating without any kind of protection is alarming and some kind of partnership agreement is crucial."
The Law Society is warning that the absence of adequate legal protection could cost businesses thousands of pounds in the event of a dispute, even though preparing the paperwork could cost as little as £100.
One company looking to retrospectively put the legal framework in place is music management and publicity business Raw Material.
"We spotted an opportunity within the industry and practically started our business overnight so we didn't spare a thought as to properly agreeing on how the partnership would work," said co-owner Firgas Esack.
"While we do get along we do row quite a lot - mainly over creative differences - but sometimes over what we think is better for the business. Being able to put the correct legal protocol in place will be a big peace of mind."
The Law Society and O2 are now offering a template for a small business ‘pre-nup' agreement, which can be downloaded free of charge at www.o2blueroom.co.uk/SmeNup
