Every Relationship Needs Rules of Conduct
Starting your own business is scary enough. If you don’t have a roadmap for your business venture, then you’re driving blind.
There are many advantages to going into business as part of a Business Partnership. Having one or more others to lean on – others who share in the responsibilities and burdens of the business – may feel more secure than going it alone.
However, if you are wanting to share the business for as long as the business exists, then it pays to make sure from the very beginning that your expectations are clear and your rights are protected. A Partnership Agreement is the best way to do this, ensuring that you and your business partners are prepared for all eventualities and are able to rely on one another for the efficient running of the business.
What is a Partnership Agreement and What Does it Cover?
A Business Partnership occurs when two or more people manage and operate a business and intend to do so for an extended period of time. Ideally, this will happen in accordance with a Partnership Agreement.
A Partnership Agreement is the legal document which sets out the rights and responsibilities of each partner as well as the way in which the business will operate.
The Agreement will include clauses for:
- How the business will be run;
- Who will be responsible for what;
- What each party will contribute when the business first starts (if anything);
- How the profits will be divided;
- The salaries of each partner;
- What is to happen if one partner decides to leave the business;
- What each party will receive if the business is wound up or sold;
- How the partners are to act in relation to business operations.
Just because the relationship between business partners is friendly in the beginning, it doesn’t mean the relationship is going to stay that way. If someone is not pulling their weight, demands a larger share of profits or decides to leave, then it pays to have legal protection of your rights and knowledge of your obligations.
Without a clear legal agreement, your rights will not be protected should something go wrong. A Partnership Agreement aims to provide protection to all partners against all eventualities.
Do I Need a Lawyer?
While it isn't legally required to seek legal advice when entering into a Partnership Agreement, a lawyer will be able to help you tailor the Agreement to suit the particular needs of your business and your partner. A lawyer will ensure that – as far as possible – all eventualities will be covered by the Agreement, so you can have peace of mind no matter what happens.
Particularly if no one within the Business Partnership has experience starting their own business, knowing which clauses to include can be difficult – if not impossible. Without professional legal advice, the Agreement could fail to provide for important aspects of your business.
‘Without a clear legal agreement, your rights will not be protected should something go wrong.’
However, if you already have clear ideas about what you would like included in the Partnership Agreement, a lawyer will be able to review a proposed Partnership Agreement to ensure that your rights are protected and everyone is aware of their responsibilities.
Generally, one lawyer is sufficient to represent all parties. However, if you are entering into a Business Partnership with people you don’t know very well, or if there is a history of animosity between one or more partners, then it would be a good idea for individual parties to seek independent legal advice.
If you think that a lawyer is the best course of action please view the Rose Law Business Partnership webpage.
Business Partnership Summary
A bit like romantic relationships, Business Partnerships rely heavily on the ongoing goodwill of the both parties. And like romantic relationships, sometimes these partnerships can turn sour.
Whether or not your Business Partnership goes through a rough patch, a Partnership Agreement is recommended for anyone about to start a business with a partner.
Drawing up a Partnership Agreement is one of the most important things you can do when starting a business. It is a practical, binding way to protect yourself and your rights against whatever the future holds for your business.
Click here for expert advice on Business Partnerships and Partnership Agreements from the team at Rose Law.