You don’t need to have a written agreement for a partnership to come into existence – in the same way that employment and other types of contract can be created without any documentation.
Sometimes partnerships are created without the partners realizing or intending it. More likely it is something they planned, but they haven’t sat down and thought through all aspects that need to be covered.
Whether there is a partnership is a question of law, and if there is an incomplete agreement, the law steps in with the provisions of The Partnership Act. The fact that the current statute was passed in 1890 is perhaps just one good reason for making sure you draw up your own set of rules relevant to a 21st century business!
A simple but comprehensive partnership deed will address ownership of the assets, shares in profits (or losses), management of the business, disputes, termination etc.
The simple fact that you have a set of rules is often enough to prevent a dispute, particularly if people understand that they can’t hold a gun to another - whether or not they plan to pull the trigger.
We have seen many situations where relationships have broken down and it is almost always easier to deal where there is a formal partnership deed in existence. In one of our recent cases, problems were resolved reasonably quickly, mainly because our client’s opponent was required or deemed to retire from the partnership and not in a position to demand dissolution which could have had damaging effects for all concerned.
We handle these situations from both ends – prevention and cure – and so we are well placed to advise you on a range of situations from straightforward and simple partnerships to more complex styles of income and profit sharing agreements as seen in farming, dentistry and other trades and professions.
Click here for shareholder agreements and other documents relevant to the management and ownership of limited companies.