Business Partnership Agreement

What is a Partnership Agreement?

A Partnership Agreement is a legal contract between two or more parties to jointly manage and operate a business, sharing responsibilities and profits.

This document is primarily for business collaboration. Sole traders or those on a freelance agreement might find the Zegal template for a partnership between individuals more useful.

The partnership agreement delineates each partner’s powers and responsibilities and, crucially, the methodology for dividing profits and losses.

Furthermore, it outlines fundamental operational guidelines, such as preparing accounts or withdrawing funds.

What Should a Partnership Agreement Include?

Key components of a partnership agreement include:

• Partner Details: Identification of partner types and their capital contributions.
• Partner Contributions: Agreeing and documenting the cash, property, or services each partner will bring to the business alongside their respective ownership stakes is vital.
• Partnership Duration: While defining an exact timeline can be challenging, discussing and documenting this is essential to underscore the commitment to a unified business venture.
• Business Name and Nature: Deciding on a partnership name is crucial, whether it derives from the partners’ names or an independent business name.
• Profit and Loss Division: The agreement must specify how profits and losses are shared.
• Exit Strategies for Partners: Discussing exit options prepares for future scenarios, such as disagreements among partners or introducing new partners.
• Banking and Financial Restrictions: This section should specify partners’ borrowing powers on behalf of the partnership.
• Authority and Decision-Making Among Partners: Establishing clear roles in decision-making is critical to prevent future disputes.

Purpose of a Business Partnership Agreement

A partnership agreement lays the groundwork for a business partnership, safeguarding and aligning partner interests. Its objectives include:

• Clarifying partnership structure and ownership percentages.
• Differentiating between general and limited partnerships, where the latter may involve silent investors with limited liability.
• Detailing dissolution processes or partnership transfer mechanisms.
• Determining asset ownership, such as business names or customer lists, if the business dissolves.

Negotiating the Business Partnership Agreement

Negotiating a partnership agreement requires careful consideration and clear communication among all parties involved. It’s essential to discuss each clause thoroughly and ensure mutual understanding and agreement on all terms.

This may involve negotiating the division of profits and losses, partner responsibilities, and the business’s management structure. A Non-Disclosure Agreement (NDA) protects sensitive information during these discussions.

Ending a Business Partnership

Partnerships may dissolve for various reasons. A Dissolution of Partnership Deed outlines the terms for winding up the partnership and distributing assets or liabilities to prevent misunderstandings. In case of disputes, legal action can enforce partner rights.

What is a Business Collaboration Agreement?

A Business Collaboration Agreement formalises a partnership between entities or individuals for a specific project or business activity, outlining roles, responsibilities, and obligations.

Key aspects may include:

• Collaboration objectives and scope
• Financial contributions and revenue sharing
• Intellectual property rights
• Confidentiality and non-disclosure terms
• Project timelines and milestones
• Termination conditions
• Dispute resolution mechanisms

This agreement acts as both a legal safeguard and a structured plan for the partnership.

When to Use a Business Collaboration Agreement?

Such agreements are suitable for contractual joint ventures, varying by project nature and including specific clauses regarding property or intellectual property in relevant ventures.

Drafting a Business Collaboration Agreement

While each agreement is unique, essential elements to consider are:

• Ownership stakes
• Profit and loss distribution procedures
• Partnership duration
• Decision-making and dispute resolution processes
• Binding decision authority
• Provisions for partner withdrawal or death

Difference Between Partnership and Collaboration

Partnership and collaboration are synonymous in this context.

Legal Requirement for Collaboration Agreements

While not mandated by law, Collaboration Agreements are crucial for mitigating risks and clarifying project investments. Without a documented agreement, future dispute resolution can become problematic, and third parties often require a legal agreement for financial protection.

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About Author

Daniel Walker

Daniel Walker is the Founder and Chief Executive Officer of Zegal, the trusted legaltech firm. Prior to founding Zegal, Daniel practised at DLA Piper, Stephenson Harwood and Clyde & Co, in Hong Kong, Singapore, and the UK.

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