Partnership Agreements

By Robyn Shepherd | SchoemanLaw Inc

A partnership is formed through a contract between two or more individuals. There is no limit on the maximum number of partners who can enter such an agreement. However, a partnership is not a separate legal entity except for certain purposes. Additionally, if one of the partners dies, the partnership dissolves, and therefore it does not enjoy perpetual succession.

Requirements of a Partnership

To establish a valid partnership, the following requirements must be met:

1. Contribution by Each PartnerEvery partner must agree to contribute to the partnership. This contribution can hold commercial or economic value and may include labour, cash, assets, or skills. It represents an undertaking by each partner to add value to the partnership.

2. Carrying on Business Together for Mutual BenefitThe partners must undertake to carry on business together and for the mutual benefit of all involved. "Business" refers to any activity aimed at making a profit. The partners must agree that they will conduct this business collectively. Simply pooling assets for individual use does not satisfy this requirement.

3. Agreement to Conduct Business ProfitablyThe partners must agree to conduct the business in a way intended to generate profit. This does not mean the partnership must generate a profit; however, the intention should be to operate profitably.

4. Intention to Create a PartnershipThe individuals must have the intention to create a partnership. The partners should be direct and clear about their intentions and should focus on concluding a partnership agreement.

5. Lawful PurposeThe partnership must be established with a lawful purpose.

Important Considerations When Drafting a Partnership Agreement

When drawing up or discussing a Partnership Agreement, the following should be considered:

• The Name of the Partnership
• Nature of the Business the partnership will engage in
• Roles and Responsibilities of each partner
• Whether the partners will be required full-time
• How profits and losses will be shared
• Which partner(s) will have cheque and purchasing rights
• Any other specifications unique to the partnership or startup

Partner Rights in a Partnership

When a partnership is concluded, certain rights are assigned to the partners, including:

• Upon dissolution of the partnership, each partner is entitled to a share of the partnership’s assets in accordance with the partnership agreement.
• When there are profits, each partner is entitled to their share of the profits as specified in the agreement.

Conclusion

A partnership agreement is a commonly used business structure. However, to avoid the partnership being deemed void, those entering such agreements must ensure all the essential requirements are met.

Robyn Shepherd | SchoemanLaw IncAttorney

For more information on partnership agreements and other commercial law services, visit: SchoemanLaw.

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