In this edition of ‘It depends’, partner Clinton Jackson talks about what a partnership agreement is and whether you need to have one.
Welcome to this edition of It Depends. Today I’m talking about whether you need to have a partnership agreement.
What is a partnership agreement?
A partnership agreement is a governing document that sets out the rules for how a partnership is to operate and the partner’s requirements to participate in that partnership.
What should I include in my partnership agreement?
It depends. Every partnership is unique. The activities of your partnership and the makeup of the partners in your partnership will be different from the next. Therefore, what you need to include in your partnership agreement will be different from what I include in mine. However, there are some key issues that we think you should include, or at least discuss as part of your partnership agreement process. One key issue that should be included in almost every partnership agreement is a continuity clause. If you don’t have a continuity clause-in your partnership agreement, your partnership will be deemed to come to an end when a partner joins or exits that partnership. That means you’ll have to go through the trouble of applying for new ABNs and text file registrations and all this other administrative pain. In addition to that, there are other key issues, such as voting on key partnership issues, partnership funding and entitlement to partnership profits. It’s also important to deal with the situation about when a partner would like to exit and how that should be valued.
Do I need one?
Absolutely. At the very least, it’s critical to have a partnership agreement that has a continuity clause, for the reasons I mentioned earlier. However, in our experience, it’s also important to have a partnership agreement that deals with a much more comprehensive range of issues, as it will help that partnership function well and deal with any hurdles that come up during the life of that partnership.
If you’d like to talk about partnership agreements and whether you need one and what should be included in your partnership agreement, please contact a member of our team.