Partnership Agreement

A partnership agreement is an agreement between the partners of a business. It protects the partners’ capital investment in the partnership business and fairly regulates the partners’ relationship with each other.

The agreement will (amongst other things):

• set-out the rights and obligations of the partners,
• regulate the partners’ investment (capital) in the business,
• set-out whether property used by the partnership belongs to the partnership or to individual partners,
• set-out how profits or losses will be shared,
• set-out how the partnership is going to be run, and
• regulate how important partnership decisions are to be made.

We strongly recommend that all partnerships enter into one of these agreements. If the partnership is or will be made up of family and/or friends then having a partnership agreement is just as important as it is for business associates, or even strangers, forming a partnership together.

In the absence of a partnership agreement, the law will impose a default set of rights and obligations on the partners. It will even dictate when a partnership comes to an end. Having a written agreement gives partners the opportunity to vary or exclude the default position imposed by law, and to establish an agreement between the partners in other areas.

An agreement will provide clarity and certainty to the relationship between the partners, and will protect the partners’ investment in the business.

Many costly disputes have been resolved and problems avoided as a direct result of entering into one of these agreements.

• What the business of the partnership will be and the firm name.
• When and how partnership meetings will be held, and how decisions will be made at those meetings. Which decisions require unanimity, a majority or a defined number of partners to agree?
• Imposing restrictions on an individual partner’s power to bind the other partners.
• What will happen if a partner joins or wants to leave.
• Whether and what drawings partners may make.
• How profits will be distributed.
• How the partnership is to be financed.
• How partnership and partner property will be dealt with
• What will happen if a partner dies, becomes mentally ill or is declared bankrupt.
• Preventing partners from competing with the partnership business.
• Preventing partners from poaching the customers or staff of the partnership’s business.
• How and when the partnership might be dissolved or wound up.

Not any more; the law has been reformed to allow partnerships to have an unlimited number of partners.