Setting up a business partnership is an effective way to ensure your great idea transforms into a viable business. But not having a written agreement can hit you for six if there are problems down the track.
What is a partnership agreement?
Fundamentally, a partnership agreement is a contract between two or more business partners, setting out how the partnership will operate.
Why is it essential to have a written partnership agreement?
Consider your financial commitment when starting your business and entering into the partnership. For example, you may have:
- invested your life savings
- taken out another mortgage
- quit your job
- relocated or sold your house.
It’s a significant risk. You don’t want to be caught out by misunderstandings, miscommunications and missteps.
A written partnership agreement is drafted to suit your specific business requirements. It formalises your agreement with your business partners about how the partnership will operate.
While verbal or informal agreements are often legally binding, there’s a higher chance of misinterpretation. A written agreement helps to clarify the rules of play if there are any issues.
A good written agreement also gives you a plan for dispute resolution, which often helps to sort out problems more quickly.
Why should a lawyer draft my written partnership agreement?
Having experience on your side is a definite advantage when it comes to written partnership agreements. A partnerships lawyer will know where agreements stand up and where they can fail.
When drafting your partnership agreement, an experienced partnerships lawyer will pay particular attention to the areas which commonly lead to partnership issues.
- division of workload
- profit share
- conflicts of interest
- conflicts of management style or personality
- regulatory compliance
- exit and succession strategy.
Most importantly, they will know how to draft disputes clauses, giving you a roadmap to reach a resolution and get on with running the business.
Before signing on the dotted line with a written partnership agreement, both you and your partner should get independent legal advice.
Why is it important to regularly review and update the partnership agreement?
Your business may change over time, and it’s impossible to predict all the potential twists and turns.
You should agree with your partner to conduct a regular review of the agreement, for example, annually. You should also review at other critical times such as when:
- the business moves premises
- there’s a change in the partners
- the business achieves the key milestones outlined in the agreement
- legal or statutory changes are set to impact the business
- someone wants to exit the partnership
Regular reviews will keep your partnership agreement robust and help keep your business healthy.
Score a hat-trick for your business by ensuring your partnership has a written agreement, is drafted by a lawyer, and is regularly reviewed. Anything less is just not cricket.
Whether you’re starting from scratch, or ready for a review, we’re here for you on the sidelines. Contact us today to discuss your partnership needs.
DISCLAIMER: This article is intended to provide general information and should not be relied upon as legal advice. Formal legal advice should be sought if you are concerned about, or require particular advice applicable to your specific circumstances in relation to, any topics covered in this article.