Why do you need a Partnership Agreement?
A partnership is formed when at least two people agree to carry on a business together (“Partners”) and distribute profit or losses between them.
A partnership agreement can be either a verbal or written agreement that is reached between Partners. It is strongly recommended that Partners enter into a written partnership agreement. A written partnership agreement outlines the rules and processes that the Partners are required to adhere to.
A partnership agreement should include at the very least, the following:
The level of control and decision making duties of the Partners;
The level of distribution of income or losses between the Partners, which is important for tax purposes if the profit or losses are not distributed equally among the Partners;
The process for the removal or buy-out of a Partner from the partnership;
The process as to how a new Partner can enter the Partnership;
A succession or dissolution plan to facilitate what would happen in the event a Partner was to die; and
The process towards resolving a dispute between the Partners.
A verbal partnership agreement may not deal with these issues.
In contrast, a written partnership agreement will be better suited to address and deal with the specific intentions and circumstances of the partnership. For example, a written partnership agreement can ensure that a sixty percent (60%) distribution of income or losses is distributed to Partner A, and a forty percent (40%) distribution of income or losses is distributed to Partner B.
In the event of a dispute, a verbal partnership agreement will be difficult to prove which makes enforcement of the agreement challenging and with the absence of any written evidence to indicate the actual terms of the agreement, generally lead to a ‘one person’s word against the other.’ There are time consuming issues one should consider given the above difficulties that come with the enforcement of a verbal agreement.
If you have entered into a verbal partnership agreement, you should urgently consider the advantages and small cost of entering into a written partnership agreement.
If you are considering the preparation of a partnership agreement, we can assist and provide you with advice in relation to the agreement. Should you require any assistance or advice in relation to the partnership agreement call us on 8523 8400 (Gawler) or 8211 6500 (Adelaide) to arrange an appointment for an initial no obligation consultation. Alternatively, send an email to email@example.com and we will contact you.