Why A Partnership Agreement Is Important

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Published on: October 16, 2021

In general, for the existence of a partnership, there must be an element of repetition that indicates the management of a company, and from this flows the objective of achieving profits shared between the partners. [2] It is therefore crucial to have a written partnership agreement to override the inappropriate provisions of the Partnerships Act 1890. Chances are you started your business because you have a passion for business. A partnership agreement means that you spend less time managing your relationship with long-term business partners and more focused on the activities of your partnership. The reality is that despite dreams of longevity and unwavering confidence, the desires and expectations of business owners change over time. A written partnership agreement can meet these expectations and give each partner confidence in the future of the company. A written agreement can serve as a protection that protects both the business and each partner`s investment. The question of whether or not a partnership exists is therefore a fact (not necessarily an agreement). So it`s not something the parties can simply determine for themselves. Although the relationship may be governed by a written partnership agreement, the essence of a partnership is the ongoing relationship between two or more people, both personal and commercial, with the contractual partnership agreement being only an indication of the relationship. The reason why it is important to have written articles of association is that if there is no written agreement, the provisions of the law (which is more than a hundred years old) apply and the standard position set out in the law may not be attractive to the partners. If the business doesn`t grow as fast as expected and these high returns don`t materialize, that partner may be tempted to stop working for the company or, worse, work for a competitor. In this case, the other owners will want to remove this partner, who no longer contributes, but still holds a stake in the company.

A partnership agreement should include a procedure to remove such a troubled or disruptive partner and recover its interests before its actions (or omissions) jeopardize the entity. In business, there are two types of partnerships. Namely: Although this is not a necessary step, you should still have a written business partnership agreement. This will help if things don`t behave as expected, as it avoids misunderstandings between you and your partner. In general, this written agreement should include the contribution of each partner to the partnership, how profits, losses and draws are maintained, the duties and powers of each partner, how disputes are resolved, voting rules for decision-making, and how new partners are admitted. Some partnerships are partnerships, with partners sharing responsibilities and liabilities. Other agreements are limited partnerships in which one or more partners act as an investor with limited or no activity in the company and little or no liability. A partnership can protect partners who wish to share profits without being actively involved in operations and open up to legal issues such as lawsuits or tax privileges. However, this assumption would be false. Without a written partnership agreement, there is no right to retirement without the dissolution of the company.

While the other partners could theoretically re-read the company, they would have to agree with the departing partner on the purchase of their share in the company. As can be seen from the above, there are a variety of issues that should be addressed in a written partnership agreement to avoid undesirable consequences. The management of the partnership, the ownership of the partnership assets, the introduction and eviction of the partners, the breakdown of the partnership and the participation in profits are just some of the things that should be included in a written partnership agreement. .

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