Going into business with another person, or perhaps many more, allows you to be flexible and make sure the business operates to its full potential. It can be an exciting prospect, but at the same time it can also be risky. That’s why it is important to put all of the important details down in a written partnership agreement.
Get it in writing!
Partnerships can be made very easily even by verbal agreement or a mere handshake. But doing so and leaving your rights and liabilities to be decided by the default position under the Partnership Act 1890, can be undesirable. It is always a safer and more sensible option to put your partnership agreement in writing, as this allows you to avoid unnecessary conflict and costly legal proceedings. Producing a written partnership agreement adds certainty and structure to your business relationship with your partner/s in a document that will be legally binding.
What to include?
A typical written partnership agreement should include at least the following 10 things:
- Name of the partnership – make sure the name you use isn’t an existing business name!
- Business activities – what is the partnership for? What are the restrictions on the activities you can undertake?
- Allocation of profits and losses –will this be based on each partner’s share of ownership, or otherwise?
- Management of the partnership – partnerships are generally informal in how they are managed, but you should still clearly set out everyone’s responsibilities
- Capital contribution – recording how ownership of the partnership is divided is crucial for avoiding unnecessary disputes
- Authority/power distribution – it is always important to regulate how decisions will be made and what each partner’s voting rights are
- Withdrawal or death – you should consider setting up a buyout scheme for the remaining partner/s if this happens
- Resolving disputes – try and save costs by considering alternative dispute resolution like mediation or conciliation
- Transfer of interests – think about what procedure might be needed for transferring interests. Does everyone need to consent?
- Tax – it is vital to deal with your financial and tax responsibilities in a correct and structured manner