At Archers Law we are specialists in assisting individuals and businesses with a variety of litigation and commercial problems.
If two or more parties wish to come together for a common business venture, they are essentially faced with a choice of how to structure the relationship.
Several factors will determine which entity is most appropriate to any given situation. For example, for those who are only interested in a relationship for the duration of a specific project, a single joint venture arrangement is often appropriate.
At the start of a joint venture or partnership, the thought of a future dispute is often the last thing people usually think of. However, unfortunately, problems can, and often do, arise. As a result, we strongly advise our clients going down this route to consider every aspect of the venture at the outset and make a formal agreement before going ahead. This will potentially saves a good deal of stress, anxiety and money further down the line.
Set out below are some of the issues which need to be considered when a partnership is set up and which therefore should be included with in a partnership agreement.
Duration of the partnership
Consideration needs to be given as to whether the partnership is to be for a fixed term or indefinitely. It is usually advisable for the partnership to be brought to an end by any partner giving notice or by the occurrence of a certain event, such as the death, retirement, expulsion or bankruptcy of a particular partner.
Consideration needs to be given as to how those assets used by the partnership are to be treated. For example, are they to be the property of an individual partner, or are they to be treated as the property of all the partners. Such assets will include the property from which the business is to be run.
It is advisable for the partnership agreement to specify how much capital each individual partner is expected to provide for the business initially and in what proportion each particular partner will be expected to contribute towards any additional future capital funding needs.
Profit and loss
As with the capital contributions, consideration also needs to be given to the proportion of any profit or loss each partner will be entitled to or responsible for. The agreement will also need to consider if the partners are to be allowed to make any drawings from the partnership on account of profits or will they only be allowed to make drawings in respect of actual profits.
Relationship between partners
The agreement should deal with the actual authority of any partner, who has what voting rights and what these relate to, as well as providing a mechanism for resolving any disputes arising between partners.
Exit of partners
The agreement should also deal with when and if partners are allowed to retire or when they can be expelled. Also what happens to their share of the partnership in such circumstances needs consideration.
The above is a brief outline of the sorts of issues that should be covered in detail by a partnership agreement.
Without a partnership agreement there is room for confusion and uncertainty as to how the partnership is run and operates and these are often the key ingredients for expensive disputes between the partners. Money spent to put a partnership agreement in place at the beginning of a venture start is a good investment.