Before you go into business with a partner, you’ll need to create a written agreement.
If you plan on going into business with a business partner, a written partnership agreement is important. If you and your partners don’t spell out your rights and responsibilities in a written business partnership agreement, you’ll be ill-equipped to settle conflicts when they arise, and minor misunderstandings may erupt into full-blown disputes. In addition, without a written agreement saying otherwise, your state’s law will control many aspects of your business.
How a partnership agreement helps your business
A partnership agreement allows you to structure your relationship with your partners in a way that suits your business. You and your partners can establish the shares of profits (or losses) each partner will take, the responsibilities of each partner, what will happen to the business if a partner leaves, and other important guidelines.
Uniform partnership act
Each state (with the exception of Louisiana) has its own laws governing partnerships, contained in what is usually called the “Uniform Partnership Act” or the “Revised Uniform Partnership Act”—or, sometimes, the “UPA” or the “Revised UPA.” These statutes establish the basic legal rules that apply to partnerships and will control many aspects of your partnership’s life, unless you set out different rules in a written partnership agreement.
Don’t be tempted to leave the terms of your partnership up to these state laws. Because they were designed as one-size-fits-all fallback rules, they may not be helpful in your particular situation. It’s much better to put your agreement into a document that specifically sets out the points you and your partners have agreed on.
What to include in your partnership agreement
Here’s a list of the major areas that most partnership agreements cover. You and your partners-to-be should consider these issues before you put the terms in writing:
- Name of the partnership. One of the first things you must do is agree on a name for your partnership. You can use your own last names, such as Smith & Wesson, or you can adopt and register a fictitious business name, such as Westside Home Repairs. If you choose a fictitious name, you must make sure that the name isn’t already in use.
- Contributions to the partnership. It’s critical that you and your partners work out and record who’s going to contribute cash, property, or services to the business before it opens—and what ownership percentage each partner will have. Disagreements over contributions have doomed many promising businesses.
- Allocation of profits, losses, and draws. Will profits and losses be allocated in proportion to a partner’s percentage interest in the business? And will each partner be entitled to a regular draw (a withdrawal of allocated profits from the business) or will all profits be distributed at the end of each year? You and your partners may have different ideas about how the money should be divided up and distributed, and each of you will have different financial needs, so this is an area to which you should pay particular attention.
- Partners’ authority. Without an agreement to the contrary, any partner can bind the partnership without the consent of the other partners. If you want one or all of the partners to obtain the others’ consent before binding the partnership, you must make this clear in your partnership agreement.
- Partnership decision-making. Although there’s no magic formula or language for divvying up decisions among partners, you’ll head off a lot of trouble if you try to work it out beforehand. You may, for example, want to require a unanimous vote of all the partners for every business decision. If that seems like more than will be necessary, you can require a unanimous vote for major decisions and allow individual partners to make minor decisions on their own. In that case, your partnership agreement will have to describe what constitutes a major or minor decision. You should carefully think through issues like these when setting up the decision-making process for your business.
- Management duties. You might not want to make ironclad rules about every management detail, but you’d be wise to work out some guidelines in advance. For example, who will keep the books? Who will deal with customers? Supervise employees? Negotiate with suppliers? Think through the management needs of your partnership and be sure you’ve got everything covered.
- Admitting new partners. Eventually, you may want to expand the business and bring in new partners. Agreeing on a procedure for admitting new partners will make your lives a lot easier when this issue comes up.
- Withdrawal or death of a partner. At least as important as the rules for admitting new partners to the business are the rules for handling the departure of an owner. You should therefore set up a reasonable buyout scheme in your partnership agreement to deal with this eventuality.
- Resolving disputes. If you and your partners become deadlocked on an issue, do you want to go straight to court? It might benefit everyone involved if your partnership agreement provides for alternative dispute resolution, such as mediation or arbitration.
For more information, check out The Partnership Book, by attorneys Denis Clifford and Ralph Warner of Nolo.
Have you gone into business with a partner, and did you write up an agreement beforehand? What would you have done differently? Share your stories or questions with us in the comments.
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Partnerships can be complex depending on the scope of business operations and the number of partners involved. To reduce the potential for complexities or conflicts among partners within this type of business structure, the creation of a partnership agreement is a necessity. A partnership agreement is the legal document that dictates the way a business is run and details the relationship between each partner.
Although each partnership agreement differs based on business objectives, certain terms should be detailed in the document, including percentage of ownership, division of profit and loss, length of the partnership, decision making and resolving disputes, partner authority, and withdrawal or death of a partner.
- Many small businesses are organized as partnerships, which require formal documentation before being established.
- The partnership agreement spells out who owns what portion of the firm, how profits and losses will be split, and the assignment of roles and duties.
- The partnership agreement will also typically spell how out disputes are to be adjudicated and what happens if one of the partners dies prematurely.
Percentage of Ownership
Within the partnership agreement, individuals commit to what each partner is going to contribute to the business. Partners may agree to pay capital into the company as a cash contribution to help cover startup costs or contributions of equipment, and services or property may be pledged within the partnership agreement. Typically these contributions dictate the percentage of ownership each partner has in the business, and as such as are important terms within the partnership agreement.
Division of Profit and Loss
Partners can agree to share in profits and losses in line with their percentage of ownership, or this division can be allocated to each partner equally regardless of ownership stake. It is necessary these terms are detailed clearly in the partnership agreement in an effort to avoid conflicts throughout the life of the business. The partnership agreement should also dictate when profit can be withdrawn from the business.
Length of the Partnership
It is common for partnerships to continue operations for an unspecified amount of time, but there are instances where a business is designed to dissolve or end after reaching a specific milestone or a certain number of years. A partnership agreement should include this information, even when the time frame is unspecified.
Decision Making and Resolving Disputes
The most common conflicts in a partnership arise due to challenges with decision making and disputes between partners. Within the partnership agreement, terms are laid out regarding the decision-making process that may include a voting system or another method to enforce checks and balances among partners. In addition to decision-making procedures, a partnership agreement should include instructions on how to resolve disputes among partners. This is typically achieved through a mediation clause in the agreement meant to provide a means to resolve disagreements among partners without the need for court intervention.
Partner authority, also known as binding power, should also be defined within the agreement. Binding the business to a debt or other contractual agreement can expose the company to an unmanageable level of risk. To avoid this potentially costly situation, the partnership agreement should include terms relating to which partners hold the authority to bind the company and the process taken in those cases.
Withdrawal or Death
The rules for handling the departure of a partner due to death or withdrawal from the business should also be included in the agreement. These terms could include a buy and sell agreement detailing the valuation process or may require each partner to maintain a life insurance policy designating the other partners as the beneficiaries.
A business partnership exists when two or more partners form and manage a business for profit. A business partnership contract sets forth the objectives of the business in addition to the procedures for making decisions that bind the partnership as well as procedures for resolving disputes. The partnership contract also includes provisions that affect the financial aspects of the business and the authority of each partner to manage the daily operations of the business.
Contributions of Partners
In addition to the stating the name and purpose of the business, the business partnership contract may include the initial investments of each partner. If the partners expect to make future investments into the business, the partnership agreement may stipulate the procedure for who will make continuous contributions to the business, the amount of the investments and how the contributions will be apportioned for the benefit of the partnership business. If a partner contributes property to the partnership, the amount of the contribution is equal to the cash value of the property.
Authority and Decisions
In the absence of a partnership agreement, the partners have equal authority to make decisions that bind the partnership as well as equally participate in the management operations of the business. The partnership contract may stipulate how decisions are made that will ultimately bind the partnership. For instance, the contract may state that any decision that affects the core of the business must require unanimous consent of the partners. Also, the partnership agreement may limit the authority of some or all of the partners to manage the business and include the specific management responsibilities of each partner.
Profits and Losses
The partnership contract can state the percentage of each partner’s share in the profits and losses of the business. If there is no partnership contract, each partner must equally share in the profits and losses of the business as co-owners of the business. However, the partnership agreement may allocate the profits and losses based upon each partner’s capital accounts. For instance, the partners are credited with the amount of their contributions and may receive profits in proportion to the amount of their contributions. The debts of the business may be charged against each partner’s capital interest in the business, which may be based on a percentage of the partner’s contributions and share of the profits.
Admissions and Withdrawal of Partners
The partnership contract can state the method for admitting new partners and the proper procedure for the withdrawal of partners. New partners can enter the business by making investments or receiving a prior partner’s interest in the business. The agreement can also require that new partners be admitted based upon the consent of the current partners. When a partner withdraws from the partnership, the contract may include the procedure for buying out the withdrawing partner’s interest and whether a new partnership contract will be required upon the withdrawal of a partner.
If you are currently involved in a partnership, or are thinking about starting up a business as a partnership, you should really take the time to think about how to write a partnership agreement. Without a set of rules in place, even minor disputes could escalate into major problems that could end up dissolving your partnership. Lastly, if you do not have a partnership agreement in place, your partnership may be governed by default rules set out by the state.
What a Partnership Agreement Can Do for Your Business
In its most basic form, a partnership agreement will give you a firm understanding of your business relationship that you have with your partners in your business. The partnership agreement will spell out how the business profits will be divided amongst the partners, the rights and responsibilities of the partners, the procedures to take when a partner leaves the business, and many other important rules and guidelines.
Remember that if you do not have a partnership agreement in place, your partnership will most likely be governed by default rules that are put in place by your state. Generally speaking, these rules are known as "The Uniform Partnership Act," or "The Revised Uniform Partnership Act." Default rules are like a "one-size-fits-all" shoe and they probably won’t work that well for your partnership.
What you Should Have in your Partnership Agreement
Although there may be other items that you want to include in your partnership agreement, here is a list of some of the most common and prominent items found in partnership agreements:
1. The name of your partnership: If you have not done so already, perhaps one of the first things that you and your partners need to sit down and agree on is the name of the partnership. Many partnerships often take the names of their partners, however you can also choose the option of making a fictitious business name. If you decide to use a fictitious business name you must make sure that the name is available for use and has not already been taken.
2. The respective contributions of the partners: When a partnership agreement is written it is important that all the partners get together and agree on who will be making what
3. How the profits, losses and draws will be allocated: Your ownership agreement should set out how the profits and losses will be allocated. Another question that should be answered is whether every partner will be able to take a regular "draw," a withdrawal from his or her allocated profits, each year, or whether the partners can take their entire allocated profits.
4. The authority of the partners: Without an agreement that is contrary, any decision of a partner can be binding on the entire partnership, even without getting the other partners to agree. If you want to make sure that no one partner can incur debt the for entire partnership without the agreement of all the other partners, you need to be sure to include this in your partnership agreement.
5. Business decision-making powers: If you do not want one partner to be able to make important business decisions without consent, then you need to make sure to spell out the business making powers of each partner. One popular method is to require a unanimous vote of all the partners for all important business decisions, but still allowing individual partners to make minor business decisions without a formal vote. However, if you decide to take such an approach, you need to be sure to spell out what constitutes an "important" business decision and what constitutes "minor" business decisions.
6. Managing: Although it is probably not a great idea to spell out every detail of management in a partnership agreement it would probably be a good idea to assign important management duties such as who will be keeping the books for the business.
7. How to bring in new partners: There may come a time in your business when you want to bring in new partners. If you can agree on this process at the outset, it will probably be much easier when the time rolls around.
8. How to deal with the withdrawal or death of a partner: Many partnerships have fallen apart when on partner decides to leave, becomes disabled or dies. You should be sure to have a buyout agreement included in your partnership agreement that deals with such situations.
9. How to resolve disputes: If you spell out how you will deal with deadlocked disputes at the outset, you can save a lot of money in the future. For example, instead of allowing the partners to go to court, you could require that arbitration or mediation is used first.
Get Professional Legal Help With Your Partnership Agreement
Ultimately, the partners involved in a partnership will need to decide on the goals and structure of their business. But the right attorney can help guide the process and help you avoid any misunderstandings or legal mistakes. Contact a small business attorney today and learn how they can help you make the right choices for your business.
If you’re starting a business with one or more partners, you want to get on the same page and be clear upfront about how the business is going to operate—and how you’ll share the money you make.
The best way to do that is through a legal document called a partnership agreement.
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What is a Partnership Agreement?
A partnership agreement is a legal document that dictates how a small for-profit business will operate under two or more people.
The agreement lays out the responsibilities of each partner in the business, how much of the business each partner owns, and how much profit and loss each partner is responsible for. It also includes rules about how you’ll manage the business and addresses potential scenarios that could affect the business, such as death of a partner or how a partner can leave the company.
The purpose of a partnership agreement is to get in writing answers to common questions that could arise in the business, so you and your partner(s) don’t find yourselves at odds down the line.
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Why You Need a Partnership Agreement
In the absence of a partnership agreement, your partnership’s operation will be governed by your state’s partnership laws. These laws offer a standardized approach to running a partnership and resolving common issues, but they’re not customized to your business and can lead to results you didn’t intend. For example, your partnership may have to be dissolved and re-formed if one partner decides to leave.
A partnership agreement lays the foundation for success in a business. To create an agreement, you’ll have to sit down with your partners and make clear decisions about who will play what role, how you’ll fund your business, how you’ll allocate profits and losses, and how you’ll handle new partners and departing ones. If you don’t go through this exercise, it’s easy to assume you’re all on the same page when really you have very different visions for how your business will run. The conflict this creates can set your enterprise on a course for failure.
There will always be disagreements and difficult decisions in the life of a business. A partnership helps to minimize disputes with your partners and give you clear guidelines when disagreements do arise.
Partnership Vs. Corporation
Whether you classify your business as a partnership or a corporation determines how you’ll be taxed and how much liability you have in the business.
General partnership is the default classification for any unincorporated business with multiple owners, whether there’s a written partnership agreement or not.
The partners in a general partnership are each fully liable for the company’s debts. For tax purposes, a partnership is considered a pass-through business. The partners’ report their share of company profits and losses on their personal tax returns and pay personal income tax on them. If they work in the business, they’ll also pay self-employment taxes.
A corporation, in contrast, is a business entity that’s created by filing paperwork with the state. You and fellow business owners own shares in the corporation, which has its own legal identity. Owners aren’t personally liable for a corporation’s business debts, and they may receive a salary as an employee of the corporation. Corporations are taxed differently than partnerships. They can be taxed as C corporations that pay corporate income taxes. Some small corporations can be taxed as pass-through entities by electing S corp. taxation.
What Should a Partnership Agreement Include?
Like any typical contract, your partnership agreement should include some basics:
- The business name
- Description of the business
- Contact information for the business and owners
In addition to that, include details to cover important decisions and scenarios you’ll face throughout the life of the business. At a minimum, your partnership agreement should include clauses to address:
How much of the business does each partner own? This is usually expressed as a percentage interest in the business
Does every decision need to be unanimous? Which decisions will you leave to majority rule? How much weight does each partner’s vote carry (for example, based on their percentage of ownership)? Detail exactly how you’ll make decisions in the business to ensure all voices are heard fairly and that no partner can question the validity of decisions after the fact.
- Capital contribution
How much will each partner put in to start and run the business? Will contributions be cash, property, or services? If the business needs more money down the road to continue operating, what is each partner’s responsibility — or, will you close your doors if you run out of cash?
- Profits and distributions
How will you allocate profits and losses among the partners? Detail when and how partners should be repaid for their contributions, and when and how they’ll receive distributions from profits.
- Death and disability
What happens if a partner dies or becomes unable to continue operating the business? Who inherits their share of the company, and does the new owner(s) also inherit their responsibilities or decision-making rights? Do the other partners have a right to buy out the departing partner’s interest? Include this clause to prepare your business for the unexpected as well as to think long-term about the possibility of your business outliving its founders.
- Withdrawal or addition of a partner
If anyone wants to leave the partnership, how can they do that? What happens to their share and decision-making rights? How will the business absorb their operational and fiscal responsibilities? What’s the procedure for admitting new partners and allocating profits, losses and responsibilities to them? It’s vital to define these terms now, while the partners are in good standing, in case you’re on bad terms when these scenarios comes up.
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If you do not currently have a formally documented Partnership Agreement to regulate how you as partners interact, then you are not alone. Many businesses, particularly family run businesses, do not bother with Partnership Agreements. This can lead to difficulties and can often be a costly mistake. Having a formal Partnership Agreement can benefit you in so many ways:
- It provides certainty in respect of many issues, from how profits are distributed to how decisions are made.
- It can help you avoid costly court cases in future if things go wrong as it provides written evidence of what was agreed between the partners.
- It formalises any unwritten rules that are currently in place in respect of the business, thereby reducing the potential for misunderstanding between partners.
- A Partnership Agreement will override the default provisions of the Partnership Act 1890.
The default position
If you do not have a Partnership Agreement in place, your business will be governed by the general provisions of the Partnership Act 1890. More often than not, these default provisions will not be desirable for you or your business.
Some examples of provisions contained in the Act are listed below:
- It is not possible to expel a partner from the partnership, the only option being to end the partnership.
- The acts and decisions of all partners are binding on the firm.
- All partners are jointly liable for the debts or wrongful acts of another partner acting in the course of business.
- Outgoing partners may still be liable for partnership debts or obligations even after they have left the partnership.
- All parties are entitled to share equally the capital and profits of the business and contribute equally to the losses.
- Every partner may take part in the management of the business.
- All partners may have an equal say in the business which can lead to lengthy unresolved disputes.
- Any partner can bring a partnership to an end by giving notice at any time.
- The partnership automatically dissolves if any partner dies.
If these default provisions are unsuitable for you (which in most cases they will be) it is vital that you have a written Partnership Agreement setting out the terms that have been agreed between you and the other partners.
Your Partnership Agreement
Your Partnership Agreement can be drafted at any time – it does not matter if you have already been in business for some time.
We will be able to help tailor your Partnership Agreement to meet the needs of you and your business.
Some of the most common issues addressed are:
- The amount of capital contributed by each partner.
- What to do if a further capital contribution is required.
- H ow profits and losses are distributed between the partners.
- The duties and powers of each partner – who can make decisions? What is expected of each partner? Do they have to devote a certain amount of time to the business? Are there any restrictions on what they can do outside the partnership?
- How often are meetings held and who can vote at meetings.
- Employment issues such as holiday, benefits, maternity leave and so on.
- Whether somebody new can join the partnership and if so, how they go about doing so.
- What happens if one of the partners wants to leave the partnership or if one of the partners dies?
- What happens if the partners disagree on an issue?
- Are there any restrictions imposed on the parties in respect of confidentiality?
Do you need a Partnership Agreement even if your partners are family members?
Yes. Many family run businesses consider it unnecessary to have a Partnership Agreement when they know and trust the people they are in partnership with so well. In fact, it is on these such occasions when it really is crucial that a Partnership Agreement is in place.
The last thing a family wants is discord between family members caused by disagreements regarding work or money. A Partnership Agreement can minimise the potential for conflict and the resentment and family problems it may create.
If you require a Partnership Agreement or have any further questions to ask about partnerships, then do not hesitate to contact Marina Maclennan or Ciaran Keane on 0117 929 2811.
As the MSP moves from the Initiating to the Adaptive Planning Phase (see Process model; Section 3 of the MSP Guide), stakeholders will be committing increased resources, which calls for clear agreements among the stakeholders. There are many ways of doing this, from very informal (e.g., an ad hoc collection of individuals) to very formal arrangements (e.g., a new legally registered organisation with independent governance and accountability procedures). The format of a Partnering Agreement described here was developed by Ros Tennyson of the Partnership Brokering Association (PBA) and we consider it useful to clarify agreements between stakeholders.
Partnering Agreements need to be developed at an early stage of a collaboration to avoid misunderstanding. This is not a contract, as it is not legally binding. Rather this is an agreement developed between stakeholders as equals. It outlines their agreement to cooperate, and states explicitly the interests of each stakeholder. Legally binding contracts may be made later if MSPs enter into complex implementation arrangements or handle large amounts of funding.
How to draft a Partnership Agreement
The process of drafting a Partnering Agreement is, in itself, a powerful instrument to bring assumptions that stakeholders have to the forefront. Often parties are a bit unspecific in their intentions for collaborating in the initiation phase, but when the partnership matures it is necessary that things more get specific and clear.
Partnering Agreements can also be reviewed by stakeholders if there is a significant change in their situation: the departure or arrival of a new collaborator, or a substantial shift in the context. Such a regular review process can, by itself, be a good way to monitor the health and relevance of the partnership.
The annex shows a sample Partnering Agreement, which can be adapted and expanded for different contexts and purposes. Remember that it should be jointly developed by stakeholders who are being expected to sign it, to avoid one party feeling pressured to sign without full understanding or ownership.
This tool has been adapted from:
Also check out: Stella Pfisterer & Nasim Payandeh (2014) Designing Comprehensive Partnering Agreements: An Introduction to the Partnering Agreement Scorecard. A tool for co-creating and reviewing partnering agreements.www.rsm.nl/prc/publications/detail/62-designing-comprehensive-partnering-agreements/
SAMPLE PARTNERING AGREEMENT
(Courtesy of the Partnering Toolbook)
1.0 PARTNER ORGANISATIONS
2.0 STATEMENT OF INTENT
2.1 We, the undersigned, acknowledge a common commitment to / concern About…
2.2 By working together as partners, we see the added value each of us can bring to fulfil this commitment / address this concern
2.3 Specifically we expect each partner to contribute to the project in the following way(s):
3.0 STRUCTURES AND PROCEDURES
3.1 Partner roles and responsibilities…
3.2 Co-ordination and administration…
3.3 Working groups / committee(s)/ advisory group(s)…
3.4 Decision-making processes…
3.5 Accountability arrangements…
4.1 We will provide the following resources to
a) the partnership and
5.0 AUDITS / REVIEWS / REVISIONS
5.1 We agree to make available all information relevant to this partnership to partners as necessary
5.2 We agree to review the partnership every … months
5.3 An independent audit of the financial arrangements of the partnership(and any projects resulting from the partnership)will be undertaken on an annual basis
5.4 We agree to make adjustments to the partnership (including re-writing this agreement) should either a review or an audit indicate that this is necessary for the partnership to achieve its objectives
6.2 This agreement does not bind partner organisations or their staff / officers to any financial or other liability without further formal documentation
Which partnership agreement? When to use the different guides and templates.
The process of coming to an agreement and the agreement itself form the foundation for a strong relationship with our partners. Both must be well suited to the purpose and nature of the collaboration and embody the partnership principles of synergy, respect, accountability and equity.
- Draw up all agreements with partners in accordance with WaterAid guidelines and with full participation of relevant staff. Ensure roles and responsibilities of different partners are clear, mutually understood and agreed. Pay particular attention to the mandatory sections of the partner agreement templates when negotiating the agreement with the partner.
- If you use another partner’s or donor’s agreement template make sure these cover WaterAid’s mandatory fields. We have specific tools for projects funded by USAID.
- A Memorandum of understanding (MoU) can be used with collaborative partners to set out the long-term vision and aims for the partnership, the value that each partner brings and how each will benefit from collaboration. An MoU includes general commitments concerning WaterAid policies but is not legally enforceable. It does not involve the transfer of funds.
- The MoU template includes guidance for a ‘light-touch’ or ‘full’ MoU. You need to use your judgement about which is appropriate based on the nature of the partner and any joint activities, and the associated risks.
- Use a project partnership agreement (PPA) to establish clear expectations, roles and responsibilities for specific funded projects delivered together. Include legally enforceable requirements for compliance and make clear the accountabilities of each partner. Where WaterAid is working with the same partner on different projects there may be several PPAs under the same MoU. Where necessary include specific donor requirements. The annexes to this agreement should include specific information about the policies and principles that are covered by the agreement.
- Where possible, and if funding is secured, use multi-year partnership agreements to provide stability and a more strategic approach.
- Use contracts with providers of construction services to specify the technical details, timing and quality of the deliverables. This template contract should be used as a guide and can be modified in line with project specific requirements, country context (including national standards and guidelines) and relevant country programme procurement policies.
Which agreement for which stakeholder?
The following definitions set out what sort of agreement is most appropriate for different stakeholders.
1. Stakeholder. A stakeholder is any actor (individual, group or organisation) participating in a project and/or with an interest in, influence on, or impacted by a project and its outcomes. The interest, influence or impact can be positive or negative, direct or indirect.
Agreement type: No agreement – unless falling into category 4, 5, 6, 7 or 8.
2. Target group. Stakeholders that we ‘target’ during the project through activities (e.g. district authorities), in order to reach and benefit WASH users.
Agreement type: No agreement – unless overlapping with category 5.
3. WASH users (sometimes referred to as ultimate or final beneficiaries). Stakeholders whom the project seeks to have a positive impact on (e.g. health centre patients, people in communities, school students). As rights holders they are key stakeholders in most projects. We do not normally sign formal partnership agreements with them but we should discuss and agree our roles, responsibilities and accountabilities to each other.
Agreement type: Possibly transfer of assets agreements.
4. Project Partner. An organisation with which we are delivering a specific, time-bound project, that is funded. A project partner is typically named within a restricted funding proposal and should pass relevant due diligence and ethical checks before an agreement is signed. A project partner can simultaneously be a collaborative partner (5) but usually cannot be a service/goods provider (6) within the same project.
5. Collaborative partner. An organisation (for example, a government agency, NGO or academic institution) we are committed to working with over a longer period to achieve broad, shared objectives without a transfer of funds. A collaborative partner can also be a project partner when working together on a funded, timebound project.
6. Service/goods provider. An individual or organisation who is contracted and funded to deliver specific goods or services within a defined (usually short-term) period. A service/goods provider usually cannot be a project partner within the same project for which they are providing services or goods.
7. Prime or key supplier. A consortium prime or key supplier builds and leads a consortium of organisations to bid for and deliver specific timebound projects. Other partners in the consortium (including WaterAid) are typically referred to as a ‘sub-contractor’ or ‘sub’. Key suppliers include private sector organisations, NGOs, and research organisations. WaterAid as a sub-contractor will sign a formal agreement with the key supplier. Terms and conditions from this agreement will usually need to flow to project partners.
Agreement type: Formal agreement with key supplier or prime. The terms of this agreement must flow down to any PPAs with our partners working on this project.
8. Consortium partner. An organisation that WaterAid is working alongside within a consortium led by a key supplier. WaterAid and other consortium partners should collaborate in line with agreed partnership principles and ways of working of the consortium.
Agreement type: In many cases, there will be no requirement for an agreement with our consortium partners.
This PARTNERSHIP AGREEMENT is made on ____________ , 20 __ between __________________________________________ and __________________________________________ .
1. NAME AND BUSINESS. The parties hereby form a partnership under the name of __________________________________________ to conduct a __________________________________________ . The principal office of the business shall be in _______________________ .
2. TERM. The partnership shall begin on ________________ , 20 ____ , and shall continue until terminated as herein provided.
3. CAPITAL. The capital of the partnership shall be contributed in cash by the partners as follows: A separate capital account shall be maintained for each partner. Neither partner shall withdraw any part of his capital account. Upon the demand of either partner, the capital accounts of the partners shall be maintained at all times in the proportions in which the partners share in the profits and losses of the partnership.
4. PROFIT AND LOSS. The net profits of the partnership shall be divided equally between the partners and the net losses shall be borne equally by them. A separate income account shall be maintained for each partner. Partnership profits and losses shall be charged or credited to the separate income account of each partner. If a partner has no credit balance in his income account, losses shall be charged to his capital account.
5. SALARIES AND DRAWINGS. Neither partner shall receive any salary for services rendered to the partnership. Each partner may, from time to time, withdraw the credit balance in his income account.
6. INTEREST. No interest shall be paid on the initial contributions to the capital of the partnership or on any subsequent contributions of capital.
7. MANAGEMENT DUTIES AND RESTRICTIONS. The partners shall have equal rights in the management of the partnership business, and each partner shall devote his entire time to the conduct of the business. Without the consent of the other partner neither partner shall on behalf of the partnership borrow or lend money, or make, deliver, or accept any commercial paper, or execute any mortgage, security agreement, bond, or lease, or purchase or contract to purchase, or sell or contract to sell any property for or of the partnership other than the type of property bought and sold in the regular course of its business.
8. BANKING. All funds of the partnership shall be deposited in its name in such checking account or accounts as shall be designated by the partners. All withdrawals are to be made upon checks signed by either partner.
9. BOOKS. The partnership books shall be maintained at the principal office of the partnership, and each partner shall at all times have access thereto. The books shall be kept on a fiscal year basis, commencing _____________________ and ending _____________________ , and shall be closed and balanced at the end of each fiscal year. An audit shall be made as of the closing date.
10. VOLUNTARY TERMINATION. The partnership may be dissolved at any time by agreement of the partners, in which event the partners shall proceed with reasonable promptness to liquidate the business of the partnership. The partnership name shall be sold with the other assets of the business. The assets of the partnership business shall be used and distributed in the following order: (a) to pay or provide for the payment of all partnership liabilities and liquidating expenses and obligations; (b) to equalize the income accounts of the partners; (c) to discharge the balance of the income accounts of the partners; (d) to equalize the capital accounts of the partners; and (e) to discharge the balance of the capital accounts of the partners.
11. DEATH. Upon the death of either partner, the surviving partner shall have the right either to purchase the interest of the decedent in the partnership or to terminate and liquidate the partnership business. If the surviving partner elects to purchase the decedent’s interest, he shall serve notice in writing of such election, within three months after the death of the decedent, upon the executor or administrator of the decedent, or, if at the time of such election no legal representative has been appointed, upon any one of the known legal heirs of the decedent at the last-known address of such heir. (a) If the surviving partner elects to purchase the interest of the decedent in the partnership, the purchase price shall be equal to the decedent’s capital account as at the date of his death plus the decedent’s income account as at the end of the prior fiscal year, increased by his share of partnership profits or decreased by his share of partnership losses for the period from the beginning of the fiscal year in which his death occurred until the end of the calendar month in which his death occurred, and decreased by withdrawals charged to his income account during such period. No allowance shall be made for goodwill, trade name, patents, or other intangible assets, except as those assets have been reflected on the partnership books immediately prior to the decedent’s death; but the survivor shall nevertheless be entitled to use the trade name of the partnership. (b) Except as herein otherwise stated, the procedure as to liquidation and distribution of the assets of the partnership business shall be the same as stated in paragraph 10 with reference to voluntary termination.
12. ARBITRATION. Any controversy or claim arising out of or relating to this Agreement, or the breach hereof, shall be settled by arbitration in accordance with the rules, then obtaining, of the American Arbitration Association, and judgment upon the award rendered may be entered in any court having jurisdiction thereof.
Executed this ______________ day of _________________ , 20 _____ in _____________________ [city], _____________________ [state].
Are you planning to go into business with some business partners? If you’re setting up a partnership business structure, you’ll want to have a Partnership Agreement in place that covers all the main concerns for your business and your relationship with your business partner. Let’s have a further look into Partnership Agreements and what they include…
What Is A Partnership Agreement?
A partnership is a business structure used when 2 or more people go into business together. In a partnership business structure, it is important that you and your partners formalise the terms of the partnership in writing. A Partnership Agreement governs important matters such as how decisions are made, what happens when a partner wants to leave the business and how disputes are handled.
When Do I Need It?
If you are operating with a partnership business structure, you need a Partnership Agreement. A partnership is a relatively easy and inexpensive business structure to set up. It gives the partners shared control and management of the business. The partnership has its own ABN and TFN.
A partnership is different to a company because it is not a separate legal entity from the partners themselves – you and your business partners are personally liable for the debts of the business in a partnership structure. This is why it is really important to record the terms of the partnership clearly in writing.
How Do I Use It?
Each of the partners will sign the Partnership Agreement. This then becomes a legally binding record of the terms set out in the agreement. You should refer to it whenever a relevant consideration comes up in the course of business e.g. when making business critical decisions in the partnership, or resolving a dispute.
Partnership Agreement Example
What To Include In A Partnership Agreement
A partnership agreement addresses a variety of issues relevant to the particular business. It is a good idea to get a lawyer to provide you with a list of issues to consider and advise you on what’s normal if you’re unsure. You can also tell the lawyer any specific requirements related to your business and they can advise on the best way to incorporate these into the agreement.
Some key things to think about are:
- What is the purpose of the partnership? E.g. is it to carry on a business? to hold an asset?
- What are the rights, responsibilities and obligations of the partners?
- How are profits and losses divided between the partners?
- How are decisions made?
- What happens when a partner wants to leave the business?
Need Help With Your Partnership Agreement?
Putting together a Partnership Agreement can seem like a daunting process, as it’s hard to know what to include and how to word it. It’s a good idea to invest in a lawyer to assist you with this process, as it’s a one-off cost that can save you from disputes and liability in the long run.
At Sprintlaw, we have a team of experienced lawyers can assist you with drafting or reviewing your Partnership Agreement. Get in contact with one of our consultants for a no-obligation chat on how we can help you put together your Partnership Agreement and help with any other legal issues your business may have.
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