Who can use this Partnership Agreement?
What is this Partnership Agreement for?
A partnership agreement is an essential document for any partnership. It sets out the rules for governance and management of the partnership business. The terms deal with partnership capital, profits and losses, drawings by partners, conduct of partnership business and decision-making.
What are the main issues?
There are many issues to be covered. The most important include:
Capital and profit shares. The partnership agreement will identify the share of capital and profits that each partner has in the business. Also, it will deal with losses – usually they are in the same proportions as profits.
Drawings/salary. As partners own the business, they do not get a salary. Instead, partners normally withdraw agreed amounts from the income of the business as “drawings” each month. At the end of the year the drawings will be deducted from the profit before profit is distributed. The partnership agreement will say what happens if there is not enough in the bank to pay the drawings or if a partner overdraws.
Management. The agreement will set out arrangements for meetings and voting rights of the partners. Sometimes there is a core group who manage the business while other partners have a more limited right when it comes to decision-making.
Partnership changes. The agreement will specify who gets to vote on introducing new partners. In a small partnership this usually means all the partners. Notice period for a partner wanting to retire will be covered as well expulsion, if a partner misbehaves. Death of a partner is also dealt with. Because capital and profits have to be paid to outgoing partners, there are often procedures for the payments to be staggered over a period. There will also be restrictions on competition for an outgoing partner.
Holidays, maternity/paternity leave, sickness and other issues will also be covered: as owners, partners do not have an automatic right to the same benefits as employees.
What detailed terms does the partnership agreement contain?
This fifteen page document contains 24 clauses covering
For more information on each of these sections, see our Explanatory Notes which you will receive when you download the document from our website.
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