Partnership agreement

PARTNERSHIP AGREEMENTS

Partnership agreement: is the contract between two or more people who are entering business ownership together.

We know that it is important to reduce fights between partners, and one of the most effective ways to do this with a detailed partnership agreement.

Ask yourself: what kinds of issues are likely to be covered in a partnership agreement are:

·         Who puts in how much of the capital?

·         Who gets how much of the profits?

·         Who has authority over which decisions?

·         Who has which responsibilities?

·         How can disputes among the partners be settled?

·         How can the partnership be changed?

·         How can the partnership be ended?

These issues seem pretty simple, but simple issues become enormously complex if they are not clarified at the beginning of the relationships. What if you were to start a partnership with your friend? You agree that the friend will invest 60 percent of the capital to start the business and he will have 60-percent ownership. You will invest 40 percent, but you will have to borrow your initial investment from the friend. The friend will receive both his and your share of the profits until the borrowed amount is paid back. But what if there are no profits? Do you still owe the money to your friend?

Let’s say you enter into partnership with two of your happen to be cousins to each other. At some points, the cousins decide they would like to bring in a fourth partner, another of their cousins. You don’t know the new cousin and are against the idea. What happens now? Can the outvote you? Do you have a veto?

You and a friend each invest 5,000,000Tshs to start a partnership. Few weeks into the business, your friend tells you that he has changed his mind and wants out. You say,”okay, you’re out.” The friend says, “Good, now give me back my 5,000,000Tshs.” You explain that the money has been spent on equipments, but when the business starts to make money you will pay him the money. You friend wants his money now and insists that the equipment be sold and that he gets his share. You refuse. Who is right?

If the above eventualities are not covered in the partnership agreement, they might have to be settled by a court and involve the expense of lawyer. Better to pay the lawyer less upfront to have a proper partnership agreement drafted that all of the partners fully understand. Ask yourself: what happens to the friendships in the above three examples?

IBC Msg: 

·         “In a good business partnership, no one partner should ever be dominant.”