If you’re thinking of starting a partnership, there are a number of things you need to have in place before you begin. One of the most important aspects is having the correct documentation. 

This is because your documents will put all your legals in writing, and will protect you from certain risks down the track. 

What Is A Partnership?

A partnership is a common type of business structure. In this structure, the business is managed by two or more people that have agreed on a common purpose. The responsibilities, income and losses experienced by the business are distributed by the partners. 

It’s quite similar to a sole trader in that the business is not a separate legal entity.  In other words, if the business runs into trouble, you can be personally liable (or in the context of a partnership, the partners are personally liable). 

This could include responsibility for buying and selling property, entering into contracts, paying damages and repaying debts. The good side, however, is that it is relatively easy and cheaper to set up. 

Types Of Partnerships 

The Partnership Act 1982 sets out three types of partnerships: 

  1. Normal partnerships
  2. Limited partnerships
  3. Incorporated limited partnerships

What sets these types of partnerships apart is the extent of liability accepted by the partners. 

General Partnership

This falls under normal partnerships. This type of partnership holds all the partners equally responsible for the operations of the business. All the patterns have unlimited liability towards the business. 

Limited Partnership

A limited partnership renders the partners responsible only to the extent of the investment they have contributed to the business. 

In a Limited Liability Partnership, each partner is responsible for themselves. So, if partner A finds itself in trouble, partner B will not be responsible for their conduct. This is known as joint and several liability

There is also the option of an Incorporated Limited Partnership. In this structure, one partner will be nominated to have unlimited liability. This person will be responsible for any financial troubles the business may run into while the other partners have limited liability. 

When deciding on the kind of partnership you want, it’s important to take into account the kind of business you have, your long term  goals and the people you will be going into business with. 

What Documents Do I Need?

Partnership Agreement

A Partnership Agreement is a legally binding document that details the responsibilities and obligations and expectations of each partner in the business. A partnership agreement will include crucial information such as: 

  • How income and losses are to be distributed
  • The investment of each partner
  • The goals and objectives of the business
  • Regulations and conduct
  • Policy on bringing another partner into the business
  • How decisions will be made
  • The process when a partner wants to leave the business

A partnership agreement will have the most important aspects of the partners agreement in writing. This is always a good idea so if a dispute ever arises, you have a legally binding agreement to refer to and rely on. 

Dissolution Of Partnership Deed

A Dissolution Of Partnership Deed (or Partnership Dissolution Agreement)  signifies the end of a partnership. The deed will free the parties from liabilities towards the business and address matters such as the division of assets, the date the end of the partnership will take effect, liquidation of assets as well as the conduct of the partners once the dissolution has taken place. 

Memorandum Of Understanding (MoU)

A Memorandum of Understanding (MoU) is a great way to outline the intention of all parties and lay out all the terms informally before entering into a legally binding contract. 

In other words, it’s a document that sets out key details in the early stages before finalising anything. 

Employment Contract

Employment Contracts are an important aspect of any business. Hiring employees or working with other businesses such as vendors requires contracts so everyone is aware of their duties as well as their rights. 

Most standard employment contracts will include key details such as:

  • Salary
  • Leave entitlements
  • Rights and responsibilities
  • Superannuation
  • Termination of employment

Employment contracts will generally differ for each employment relationship, so it’s a good idea to get a lawyer to help you with yours. 

Profit Share Agreement

A Profit Share Agreement will determine how the partners will split profits that the business earns. The sharing of profits can be a point of contention between partners, so getting this in writing can prevent litigation in the future. 

What Kinds Of Clauses Should I Include? 

Exclusivity Clause/Non-Compete

Many employers use exclusivity and Non-Compete Agreements with their employees. This is a common and effective way to protect your business’ IP and trade secrets as it prohibits employees or partners from working with your competitors. 

This way, you can also retain your competitive edge. 

Confidentiality Clause

Getting into business with someone you trust is imperative for success. Protecting yourself and your business legally is even more vital. 

A Confidentiality Clause holds partners accountable for keeping the inner workings of the business private. After all, the last thing you want is your competitors finding out your business plan, goals and other valuable secrets. 

Force Majeure 

With any business venture, there is always a risk of unexpected events occurring. Sometimes, these kinds of events go so far as to seriously disrupt your business activities. In fact, these are often out of your control. 

This is where a force majeure clause is useful. The clause essentially recognises that sometimes, you cannot do what you had planned due to something external. 

In this case, a force majeure clause will exempt you from performing that duty on the basis of an event that was out of your control 

Example
Let’s say John was expected to make a food delivery for Howard’s grocery store by Friday. Unfortunately, the extreme flooding caused by Sydney’s poor weather has destroyed his van, preventing him from successfully delivering the goods. 

These severe weather conditions were out of John’s control, and if there was a force majeure clause in their contract, John may be exempt from performing this duty as agreed. 

However, this also depends on the nature of the clause. For example, the clause itself should define what would amount to a force majeure event. If their contract specifically specified that severe weather conditions do not constitute a force majeure event, then John would still be obligated to perform his duties under the contract. 

Privacy Policy

Most businesses nowadays have some online presence. In this case, a Privacy Policy is crucial for you. 

A Privacy Policy allows visitors to your website to know that you are handling their information correctly. If you are collecting information of any kind, you need to disclose the way you are handling their data and be as transparent as you can so  that you remain compliant with privacy laws in Australia. This can include cookies, email addresses, names and credit card numbers. 

If your business has an annual turnover of more than $3 million, the Privacy Act 1988 applies to you and you will need a number of documents and policies (including a Privacy Policy) to protect both your customers and your business alike. 

If this is your business, you may also want to look into a Data Breach Response Plan and Work From Home Policies. However, even if the Act doesn’t apply to you, it’s always good business practice to ensure you are transparent with users about data as privacy matters are generally taken quite seriously. 

ASIC

Legal documents can be a complex part of the process, but don’t forget your basic administrative duties, too. Notifying and submitting certain documents and forms with ASIC is crucial. 

You will need to register your business name on ASIC, unless your partnership is using the names of all the partners as the business name. It’s also good practice to stay up to date with the relevant fees to pay as this can change quite regularly. 

Key Takeaways 

There’s a lot to consider when starting a partnership. Whether you’re deciding on the partnership structure that is right for your business or drafting internal policies,having a legal professional’s help will make this process a lot easier. 

If you would like a consultation on your options going forward, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

About Sprintlaw

Sprintlaw is a new type of law firm that operates completely online and on a fixed-fee basis. We’re on a mission to make quality legal services faster, simpler and more affordable for small business owners and entrepreneurs.

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