Posted by Minna Boyle on 8 November 2018
Are you planning to go into business with some business partners? If you’re setting up a partnership business structure, you’ll want to have a Partnership Agreement in place that covers all the main concerns for your business and your relationship with your business partner. Let’s have a further look into Partnership Agreements and what they include…
What Is A Partnership Agreement?
A partnership is a business structure used when 2 or more people go into business together. In a partnership business structure, it is important that you and your partners formalise the terms of the partnership in writing. A Partnership Agreement governs important matters such as how decisions are made, what happens when a partner wants to leave the business and how disputes are handled.
When Do I Need It?
If you are operating with a partnership business structure, you need a Partnership Agreement. A partnership is a relatively easy and inexpensive business structure to set up. It gives the partners shared control and management of the business. The partnership has its own ABN and TFN.
A partnership is different to a company because it is not a separate legal entity from the partners themselves – you and your business partners are personally liable for the debts of the business in a partnership structure. This is why it is really important to record the terms of the partnership clearly in writing.
How Do I Use It?
Each of the partners will sign the Partnership Agreement. This then becomes a legally binding record of the terms set out in the agreement. You should refer to it whenever a relevant consideration comes up in the course of business e.g. when making business critical decisions in the partnership, or resolving a dispute.
Partnership Agreement Example
Val and Pip are starting a marketing consultancy business together. They have decided to enter into a partnership and need a Partnership Agreement to set out the terms of their business relationship.
They have agreed that Val will look after the majority of the business operations because she has more experience. Pip will specifically deal with the client engagement. As Val will have more responsibilities, she will retain more of the profit. By recording this arrangement really clearly in the partnership agreement, they can make sure there
are no misunderstandings later on.
What To Include In A Partnership Agreement
A partnership agreement addresses a variety of issues relevant to the particular business. It is a good idea to get a lawyer to provide you with a list of issues to consider and advise you on what’s normal if you’re unsure. You can also tell the lawyer any specific requirements related to your business and they can advise on the best way to incorporate these into the agreement.
Some key things to think about are:
- What is the purpose of the partnership? E.g. is it to carry on a business? to hold an asset?
- What are the rights, responsibilities and obligations of the partners?
- How are profits and losses divided between the partners?
- How are decisions made?
- What happens when a partner wants to leave the business?
Need Help With Your Partnership Agreement?
Putting together a Partnership Agreement can seem like a daunting process, as it’s hard to know what to include and how to word it. It’s a good idea to invest in a lawyer to assist you with this process, as it’s a one-off cost that can save you from disputes and liability in the long run.
At Sprintlaw, we have a team of experienced lawyers can assist you with drafting or reviewing your Partnership Agreement. Get in contact with one of our consultants for a no-obligation chat on how we can help you put together your Partnership Agreement and help with any other legal issues your business may have.