Many people go into business with a friend or a family member and because they know each other for so long, they do not anticipate that problems could arise. The High Court is full of cases where it was thought problems would never arise. Partnership agreements should be completed at the outset of any business and they can often be completed very quickly and at very low cost.
The main benefit of a Partnership Agreement is that you will then have a document that clearly sets out everybody’s rights and duties and hopefully can be used to deal with any disputes that arise. Otherwise the High Court may be the only alternative.
The matters you need to consider when a Partnership Agreement is being prepared are:
- Describe the exact nature of the business and who the partners are.
- How long is the partnership to last?
- Set out details concerning any capital introduced to the partnership and whether or not this results in a specific division of profits.
- Set out specifically how profits and losses are to be dealt with by the partners and how drawings are to be dealt with.
- The agreement should set out when the partners should meet and how decisions are arrived at. Voting is therefore critical and a decision has to be made particularly concerning a casting vote.
- How many holidays can be taken and how are absences to be treated?
- Partnership property should be set out with particular emphasis on what is to happen to partnership property if for any reason the partnership comes to an end.
- Accounts and records have to be kept and the person responsible for keeping the accounts and records should be named.
- There should be provision for expulsion of a partner who is in breach of serious aspects of the agreement.
- Specific provision should be made to allow partners retire either voluntarily or through ill health.
- Termination provisions should be incorporated.
It should be noted that a partnership agreement is normally prepared where two or more people are doing business together and have not formed a limited liability company. If they have formed a limited liability company then a shareholder’s agreement should be completed.
Q. What is the position if I am in business with 2 colleagues and we have no agreement in writing?
A. The terms of an agreement can be implied from the conduct of the parties but unless the agreement is in writing disagreement is almost inevitable and then it may be up to a judge to decide matters if the parties cannot arrive at an agreement themselves.
Q. If I die and we do not have an agreement in writing, what happens to my share in the business?
A. It will pass under your will but again, if there is a dispute and there is nothing in writing, court proceedeings may be the only way forward.
Q. How much does it cost to prepare a comprehensive Partnership Agreement and how long will it take?
A. A short, simple Agreement can be prepared in a matter of days and can cost as little as €1,500 plus VAT. A more comprehensive Agreement will attract a larger fee and can take a number of weeks to negotiate. The eventual fee can be in the region of €3,000 to €4,000 plus VAT.