A partnership agreement is a contract drawn up between business partners setting out the terms and conditions of their association. Details include the parties’ powers and duties, administration roles, their share of ownership, profit and loss, the duration of the agreement, how it can be ended and how one party can buy another out.
A partnership agreement does not need to be in writing. Where two or more parties are acting as co-owners and sharing business profits then the relationship is held to be a partnership. This means that each party is liable for any debts. Where there is no written agreement partners may not draw a salary and must share profits equally.
A strategic partnership agreement is one made between two commercial enterprises. Where companies are able to assist or enhance each other’s position with added benefit to themselves they will enter into a strategic partnership agreement. This can help in areas such as marketing, distribution product development or infrastructure projects.
A partnership agreement does not need to be notarised to be legally binding. However should a dispute arise it is helpful to be able to provide a notarised agreement. As well as confirming that the document was legally executed, a notary will also be able to identify the parties to the contract and confirm that they intentionally formed the agreement.
A well-drafted partnership agreement can prevent disputes later on. By setting out an agreed procedure for every eventuality at the beginning of an association there is less scope for misunderstanding or disagreement between the parties as time goes by. The document should cover such issues as the parties’ responsibilities, financial matters and dealing with disagreements or unforeseen events.
A partnership agreement should state how it can be terminated, for example the required notice period or in the event of illness or incapacity. Where there is no agreement, termination can be by notice, bankruptcy, death or court order. A partnership agreement can contain clauses allowing partnership to continue even if one party leaves, dies or becomes bankrupt.
A partnership agreement can be implied by conduct. Where two or more people are carrying on a business as co-owners, holding themselves out as partners to the public and are sharing in the profits they have formed a partnership, whether or not they intend to.
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