A Partnership Agreement is formed when two or more people who go into business together formalise the terms of a Partnership business structure into an agreement.
A partnership is a business structure that is not a separate legal entity like a company, but instead holds each partner responsible for the actions of the others. In other words, the partners are personally liable for the actions (or inactions) of their partners, any losses or damages and any profits to the business. When starting a partnership, it’s a good idea to first speak with a contract lawyer.
Should the Partnership Agreement be in writing?
While it is not required by law that Partnership Agreements be in writing to be enforceable, it is certainly recommended that you have a contract lawyer draft your Partnership Agreement – particularly if you already have a clear vision as to how the partnership will be managed and on what terms and conditions the Agreement will be based.
If the Agreement is in writing from the very beginning, the likelihood of there being disputes or confusion will be significantly diminished. A contract lawyer may very well consider circumstances or scenarios that you had not considered. This will help to create a far more comprehensive document than one you put together yourself.
If things go sour down the track, you won’t need to worry about proving the terms if the agreement is explicit in in terms and conditions. This is an important document for risk management of the business and can potentially save the business lots of money.
What are the essential terms of a Partnership Agreement?
To ensure the fullest degree of protection for your business, you should speak with a contract lawyer about preparing a Partnership Agreement. In fact, the best approach to ensure that the partners have entered into the Agreement on fair and equitable terms is to seek independent legal advice for each individual partner. Some of the most important terms to be covered are:
- Financial Contributions – What will each partner contribute financially?
- Profits and Losses – How will profits and losses be managed?
- Obligations/Rights – What are the rights and responsibilities of the partners that should be drafted into the Agreement?
- Dispute Resolution – Have methods for resolving disputes been considered in the Agreement?
- Term – How long is the Agreement meant to last? Is it for the life of the partnership?
- Exit – How will departure of a partner be managed?
- Other Agreements – Are partners to the Agreement allowed to enter into alternative agreements that will bind the other partners?
If an experienced contract lawyer does not draft the terms and conditions of a Partnership Agreement, there is the risk that the duties and responsibilities will be unclear and disputes will become more likely.
By documenting and formalising the partnership relationship, you are minimising the risks of litigation in the event of a dispute. This is an important factor to consider as a startup, as money is not always easy to come by.
Be wary of taking advantage of free templates or precedents. Your circumstances will inevitably be unique and a contract lawyer should play some part in advising you on the most appropriate form and structure of a Partnership Agreement. Give your business the protection it requires by formalising the Agreement with an experienced contract lawyer.
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