Partnership Agreement BC
A LEGAL BUSINESS IS A HEALTHY BUSINESS
A partnership is a great business structure which offers benefits like more access to capital, shared duties and responsibilities, more knowledge and expertise, and a simpler operating structure than a corporation.
Unfortunately, the majority of partnerships fail due to misunderstandings, inability to resolve conflicts, unclear expectations or financial disputes. A partnership agreement is a crucial safeguard that makes it easier to avoid future conflict.
The Benefits of Partnership Agreements
Establishing a partnership agreement right from the beginning is essential to carrying on business as a partnership. This agreement ensures that partners know exactly what to expect from one another, including their rights and duties in relation to the partnership, which helps avoid future disputes and misunderstandings over the course of the working relationship.
Types Of Partnerships In BC
General Partnership
In a GP, partners are personally responsible for all aspects of the business, including the debts of the partnership. A GP can assist with an easy start, less complicated process when filing tax returns and hassle-free pooling of resources.
Limited Partnership
A LP can have general and limited partners. This structure offers bigger potential to raise capital, but it can be more costly to set up. Typically, the liability of a limited partner is restricted to their initial investment while a general partner’s liabilities are not limited. It’s important to have a concise partnership agreement between limited and general partners to ensure no problems arise in the future.
Limited Liability Partnership
A LLP limits certain liabilities among all partners. Typically, a partner will not be personally liable for the debts or misconduct of other partners.
Important Components For Effective Partnership Agreements
At Parr Business Law, our team of experienced lawyers will be able to assist you in crafting an effective partnership agreement so that you’ll be set up for success. There are 5 crucial clauses that should be included in your partnership agreement:
Capital
Be clear on how much money each partner is investing upon startup. Answer questions such as what happens if the initial capital isn't enough for the business to generate net profit? Possible solutions are to cut your losses, seek outside investment or personally invest more money.
It would also be wise to state the role of each partner. Are they here just for capital investment or will they be working on the day to day operations of the business? This makes expectations of all partners very clear, and can help avoid future conflict.
Management & Decision Making
Do all partners need to have unanimous consensus before moving forward on major decisions? Do different partners have the final say on different domains of the operations? What is the process to go about making major decisions? What does the day to day management process look like?
Having these questions that should be answered and agreed upon by all partners prior to going into business together will help avoid future disputes.
Salaries & Distributions
How company funds are allocated needs to be agreed upon by all partners to ensure a smooth future. Partners should come to an agreement as to when they can take money out of the business. Whether you wish to grow your business to national recognition,or to build it up until it pays you a steady salary determines how long you will reinvest profits for and when you can withdraw funds for personal salary. Also, it’s important to decide if the partners will be compensated for their initial investment, and if so, at what stage will this happen.
Dissolution
It would be prudent to discuss what happens if a partner wants to exit the business in the future. Deciding the exit process now, while you are on good terms, can save time and money down the road, ensuring minimal headache if this occurs.
Death & Disability
In the event that something happens to one of the partners, they will need to have a beneficiary who will inherit their shares, make decisions on their behalf, and perhaps even have a say in the direction of the company. Address any relevant trusts, wills and insurance policies in this section.
Steps To Create A Legally Binding Partnership Agreement
1. Consultation & Discussion
The first step is to discuss your business vision, goals and partner expectations with your partners. Parr Business Law will provide valuable insight into legal considerations, agreement clauses, and help identify any future business issues and how to avoid them.
2. Draft the Agreement
Based on the consultation, Parr Business Law will draft an agreement that covers all aspects discussed in the consultation.
3. Review and Revisions
We will review the drafted contract with you and your partners and make any changes necessary to finalize the agreement.
4. Sign the Agreement
Upon approval by all partners, the final agreement is signed, making it legally binding.
5. Post Agreement
Each partner should have a copy of the agreement and store it in a safe place such as a safe deposit box.
FAQs
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A DIY contract can save you cash in the short term; however, it is nearly impossible to find a template that fits all your business and relationship needs. Your business is complex and unique, we recommend that you work with a team of trusted professionals to reduce the possibility of costly litigation battles in the future.
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Without clear expectations of duties, responsibilities, management and financial clarity, conflict may arise in the future that leads to many painful, costly litigations. Having a partnership agreement that indicates how potential problems will be solved can remove headache and prevent future business breakdown.
Need Help Creating a Partnership Agreement?
When it’s time to take the next step in your professional life, crafting a partnership agreement offers a wealth of benefits. Our lawyers have the specialized knowledge to provide you with reliable and candid legal advice on partnership agreements so you can protect your business and avoid conflict down the road. Schedule a consultation call with us today to learn more.