Partnership Agreements

A partnership is where more than one individual or entity gets together for a business venture with a view to make a profit. Traditionally people have seen partnerships between:

family members, whether they are siblings or spouses, operating small businesses; and
professionals, such as accountants and lawyers.

Generally, an act of a partner binds the others in the partnership unless it had been known to the third party affected that the partner was not so authorized.

Partnerships are regulated by the Partnership Act 1892 (NSW) ("the Act"). However, not everything in respect of a partnership is dealt with by the Act, thus the need for an agreement.

A good partnership agreement should cover at least the following issues:

the individuals or entities who will be partners and the maximum number of partners
whether it is a new partnership or continuation of an existing partnership
the business name, type of business of the partnership and the location of the business
each partner's share in the business pursuant to which profit/loss is to be distributed
each partner's capital contribution to the business and whether any interest will be paid on the capital
how will drawings be made from the business and whether a partner will be entitled to a salary, how each partner will be reimbursed for expenses
bank, accountant and lawyer for the business and bookkeeping and preparation of accounts for the business
insurance for the partnership business and in respect of individual partner
what are the duties of each partner and who will be responsible for day-to-day management of the business
how decisions are to be made, what decisions require all or some partners and management meetings
whether any one partner will be just a "sleeping" or inactive partner and extent of liability of each active and inactive partner
resignation, removal or retirement of a partner, how is the partner to be paid out and formula to value the partner's share
introduction of new partners and planning for the continuation of the partnership business
restriction on the outgoing partner not to compete or solicitor clients and employees of the former partnership
how is any disputes between the partners are to be resolved
termination or dissolution of the partnership, how to wind up a partnership and distribute any asset of the partnership

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