Know The Importance Of Having A Partnership Agreement In Australia

January 13, 2022    commerciallawyersinperth
Know The Importance Of Having A Partnership Agreement In Australia

A partnership agreement is an important document dictating the terms on which your business revolves. It also governs the relationship between the partners in the partnership and lays down their rights and obligations in the business. If you want to draft a partnership agreement for your business in Perth, consult commercial lawyers Perth to discuss your requirements.

Let us now study in detail about partnership agreement and its importance.

What Is A Partnership Agreement?

A partnership agreement is a written contract in a business structure where two or more partners are involved. It outlines the duties and responsibilities of each partner. The duties include duties to each other and to the business itself. The agreement also governs crucial matters like how decisions are to be taken, how disputes would be handled and what would happen when any partner decides to leave the business.

Once the agreement is written, each partner signs the document, and it becomes legally binding and enforceable. The partnership agreements lawyers are expert professionals who can help in drafting effective partnership agreements.

When Is It Needed?

A partnership business structure essentially needs a partnership agreement in place to govern the activities of the business. A partnership is an easy and affordable way to set up a business which gives each partner the ability to control and manage the business. The partnership even has its own TFN and ABN.

A partnership is different from a company as it is not a separate legal entity, which means that every partner is personally accountable for the actions of other partners in the business and any liabilities that the partnership incurs. Thus, it becomes imperative to have a proper partnership agreement jotted down by partnership agreement solicitors.

Is It Necessary To Have The Partnership Agreement In Writing?

The law does not demand you to have a partnership agreement in writing. However, it is better to hire a lawyer and get the agreement jotted down. A written agreement clearly defines the relationship among different partners and also determines how the partnership will function.

When there is no written agreement for a partnership, the default provisions of each state and territory’s relevant legislation apply. That’s why drafting a written agreement is necessary to ensure that the legislation does not have any control over the operations of your business.

Terms To Include In A Partnership Agreement

Each business structure is different, and a partnership agreement can always include as many intricate and detailed terms as possible. So, it is always recommended to consult commercial lawyers who would be able to identify the complexities and accordingly draft an agreement. However, in general, these are some important terms that should be incorporated in a partnership agreement:

  • Financial Contributions

It outlines how much each partner will be contributing financially. If the partnership is between two persons, usually there is a 50-50 division of the total contribution. However, that is not the case always, so it is crucial to incorporate this term to avoid future conflicts.

  • Profit And Loss

Quite similar to the financial contributions, this provision specifies how the partnership’s profits and losses would be divided among the partners. It should be clearly mentioned whether the split of profits and losses would directly depend on the division of financial distributions or if some other system would apply.

  • Decision Making Rights

It outlines what will be the role of each partner in making the decisions in the partnership. The clause also details whether the decisions are to be made by a majority of partners, a unanimous vote or a single partner who holds the right to decide on behalf of the partnership.

Moreover, it must also specify whether or not a partner can enter into an agreement on behalf of the partnership and, if yes, whether there are any limits on this authority. Get in touch with the best commercial lawyers Perth to discuss your business structure and draft a detailed partnership agreement.

  • Resolving Disputes

Disputes can arise among the business partners, so it only makes sense to include a dispute resolution clause in the agreement. The partners will have to follow the mentioned process in the agreement in case of a dispute and settle their differences peacefully. The clause should also go on to further mention what to do if this process fails.

  • Exit

In case any partner wishes to leave the business, the agreement should mention the process that needs to be followed in such a scenario. If this clause is missing, the legislation will automatically dissolve the partnership when a partner gives the notice to leave. On the other hand, an exit term overrides the legislation and allows the partnership to continue with the remaining partners.

Summary

Apart from the above advantages, there are several other benefits of drafting a proper and detailed partnership agreement. If you are entering into a partnership in Perth, you can approach the leading firm Commercial Lawyers Perth WA and chronicle a partnership agreement.

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