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A Partnership Agreement is an agreement between two or more individuals who would like to manage and operate a business together in order to make a profit. It is a relatively common business structure in Australia, and can be contrasted to other common business structures such as a sole trader, a company or a trust. This agreement can be used for a partnership, but is not appropriate for a sole trader, company, trust, or other legal structure.
In a partnership, several partners are able to work together (unlike a sole trader). Each partner shares a portion of the partnership's profits and losses and each partner is personally liable for the debts and obligations of the partnership.
Compared a company or a trust, a partnership can have lower set up and administration costs. However, while companies and trusts offer some protections against liability, a partnership does not. A partnership is not a separate entity from the partners. If the partnership incurs a liability, the partners are personally responsible for it. Furthermore, a partner can become liable for debts that another partner has incurred on behalf of the partnership.
Nevertheless, a partnership is a cheap and convenient way for a several people to go into business together, and is a popular business structure for many Australians. And an important step in getting the partnership established, is to make a written record of the agreement between the partners, by using this Partnership Agreement.
This Partnership Agreement describes the partner responsibilities, outlines the ownership interest in the partnership, defines the profit and loss distribution of each partner, prepares the partnership for common business scenarios, and includes other important rules about how the partnership will be managed and conduct business.
The document is a critical foundational document for running a new business and sets the business up for success by ensuring clear communication and defined responsibilities for all of the partners. This Agreement documents both contingency plans for when things go wrong as well as descriptions of the partnership's day-to-day operations. A Partnership Agreement may help to protect the partners involved in the business. Any individuals who plan to enter a partnership together may benefit from using a Partnership Agreement.
How to use this document
A Partnership Agreement can be created either as a first step to outline partner expectations and responsibilities before the partners begin doing business together or after the partnership has already been in business if a Partnership Agreement was never created and the partners wish to codify or clarify how the partnership operates. No matter when in the life of a partnership a Partnership Agreement is created, the Agreement will cover the following ground:
The Agreement also includes the ability to define management roles within the partnership if the partners wish to do so. Once the Partnership Agreement is completed, all of the partners should sign and date the Agreement. Each partner's signature should be witnessed by an independent adult, meaning somebody over 18 years old, who is not involved with the partnership. This means the partners can not witness each other, and people closely connected to the partners (such as their respective spouses) should not act as witnesses either.
Most partners make sure to keep copies of their Partnership Agreement, for their own records. In most cases, if the partners wish to change any terms of the Partnership Agreement at a later date, they make sure to do so in writing.
Each state and territory in Australia has a Partnership Act.
General principles of contract law, as provided by the common law, may also apply.
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