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Drafting a Partnership Agreement: What are ‘financial matters’?

Ordinarily, a Partnership is structured in such a way that the partners will make equal contributions, or ‘investments’ into the Partnership. Some Partnerships, however, are structured differently and different partners make unequal contributions. In these circumstances, it is important that an experience business lawyer includes the details relating to ‘financial matters’ into the Partnership Agreement so that there is no confusion.

            Provision example 1: Unless otherwise agreed by the Parties, the Parties will contribute equally to the partnership capital at the commencement of the partnership and from time to time during the existence of the partnership.

The above provision is essential for any Partnership Agreement, especially those in which the partners make unequal contributions. If one partner has made a larger initial investment, it is reasonable to assume that he or she expects this difference to be accounted for in the Partnership Agreement.

 

            Provision example 2: Unless otherwise agreed by the Parties, the Parties will share equally the profits and losses of the partnership.

Understandably, partners who have made larger contributions to the Partnership will expect to receive a larger portion of the profits. This inevitably means that they also take on more risk of loss in proportion to their respective contribution. Speak with a business lawyer about drafting this provision into the ‘financial matters’ clause.

  

          Provision example 3: The Parties agree that they will keep and maintain proper books and accounts relating to the partnership, including but not limited to a schedule of all income and expenses of all income and expenses of the partnership.

This provision ensures that all receipts, payments, outgoings and ingoings are recorded in the Partnership accounts. This is an important term for your business lawyer to include in the Partnership Agreement as it guarantees that in the event of a dispute there is no question as to who has paid what.

 

           Provision example 4: The Parties agree that on [date] during each year of the partnership the Parties will cause to be prepared financial accounts, including but not limited to a balance sheet and profit and loss statement, for the partnership.

It helps to draft into the Agreement a requirement that the accounts will, once a year (at least), be prepared so that each partner is able to see the profits and losses of the Partnership, and raise any concerns that they may have about the future of the Partnership. Again, get your business lawyer to draft this into the Agreement.

 

           Provision example 5: Unless otherwise agreed by the Parties, these financial accounts must be prepared and a copy provided to each party within 3 months of the end of the financial year in each year of the partnership.

By providing a copy to each partner of the financial accounts, it is guaranteed that there will be no doubts as to the way in which the money of the Partnership is being used. This can sometimes be an area of concern for certain partners if there is not complete transparency.

 

            Provision example 6: The Parties will review the financial accounts and must give notice of any errors in the financial accounts within one month.

This provision places the responsibility on each partner to be checking that the accounts are in order. Your business lawyer would be wise to include this provision as well.

Conclusion

‘Financial matters’ should be as transparent as possible in any business, particularly a partnership. This maintains the integrity of the Partnership and strengthens the trust relationship between the partners themselves.

If you are in need of assistance drafting your Partnership Agreement, contact LegalVision on 1300 544 755 and speak with one of our experienced business lawyers.

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Lachlan McKnight

Lachlan McKnight

CEO | View profile

Lachlan is the CEO of LegalVision. He co-founded LegalVision in 2012 with the goal of providing high quality, cost effective legal services at scale to both SMEs and large corporates.

Qualifications: Lachlan has an MBA from INSEAD and is admitted to the Supreme Court of England and Wales and the Supreme Court of New South Wales.

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