Profit Strategies    Partnership Agreement

Partnership Agreement

A ‘written’ partnership agreement is highly recommended

A partnership is a business entity in which two or more individuals or entities combine their skills, resources and money and share the profits and losses. Although most partnerships are between individuals, they can also be between family trusts, unit trusts, and companies.

Partnerships are regulated by the various state based Partnership Acts and the partners’ partnership agreement. The state based Partnership Acts are very old, for example, the West Australian Partnership Act of 1895 is still in operation.

Written partnership agreements are highly recommended and should cover the following:

  • Each partner’s role and level of authority. This should detail the roles, duties and position of each partner and will help to reduce confusion and arguments among partners.
  • Each partners financial contributions to the start-up costs, ongoing expenses, and the profit split between each partner. The profit splits can be 50/50 or 60/40, or any split agreed upon.
  • The procedures for dispute resolution. This normally involves independent arbitration as this is effective and much cheaper than incurring legal costs on solicitors.
  • The procedures for dissolving a partnership. This is the clearly defined exit plan for each partner to leave the business. It clarifies the circumstances by which one partner can expel another in case one partner is not complying with the agreement. It also offers a plan for dissolution of the business if both parties are ready to end operations.

Partnership agreements should be drafted by solicitors or purchased from online legal document providers.