PARTNERSHIPS ARE LIKE MARRIAGE
The Partnership Agreement is really like a corporate rule book for:
- how the partners will get into the partnership;
- how the partnership will run;
- how the profits of the partnership will be divided;
- how decisions will be made;
- how the partners will get out of the partnership.
You may not look at the rule book from play to play but when you don’t agree with a call, it is the rule book that has the final word. And that is how a Partnership Agreement works too.
You and your fellow partners, will make the day to day decisions about the partnership and its business, but at some point you may not necessarily agree with each others ideas. That is when you can refer to the agreement for a ruling.
Remember that a partner can bind their other partners, so you should take no less care in choosing your business partner than you would choosing your life partner.
Do You Really Want A Partnership?
Do you really want a partnership? It is possible to argue that partnerships are a little outdated and from an operational viewpoint in particular are not especially efficient.
They have the advantage (if in your case you consider it an advantage) that they don’t pay tax as an entity (although they do have to submit a return). Rather the taxable profit is simply distributed to the partners who add it to their personal returns.
And of course they do not have any protection against liability. Unlike a company each of the partners is liable for the whole of the partnership’s debts.
Of course there are some businesses that can only operate as partnerships (lawyers for example). But if you do not need to be in partnership you might want to get some advice before you decide to choose that particular mode of operation.
What Is In A Partnership Agreement?
It will cover things like:
- the respective proportional interests of the partners
- the capital and/or security to be contributed by the partners
- the business to be conducted
- authorised expenses and expense authorisation procedure
- the partnership’s accountants
- the partnership’s lawyers
- maintenance of proper business records
- trading names and logo’s
- the partnership’s intellectual property
- partner’s share of profits and losses
- regular partner’s drawings
- partner’s duties
- resignation/retirement of a partner
- sale of a partner’s interest in the partnership
- expulsion from the partnership
- death/incapacity of a partner
- admission of new partners
- termination of partnership
- dispute resolution
If you would like help or advice in negotiating, drafting or checking a partnership agreement please ring us.
Peter Townsend BS, LLB, FAICD
Peter Townsend Business Lawyers
The Clarence Street Professional Group
Level 3 – 222 Clarence Street
SYDNEY NSW 2000