in this video i'm going to take a look at a partnership
agreement having a partnership agreement drawn up the reason i want to address this topic in
the video is because it's misunderstood let me explain people come to me from time to time
small business owners or entrepreneurs or people who are going to start a business and they want
to start a business with their friend perhaps or colleague or work mate or somebody doesn't
know well they're going to go into partnership and that's fine they come to me then and they look for
a partnership agreement to be drafted which they'll both sign and enter into and i give
no quotation for it and i never hear from them again i'm not in the least bit surprised that i
don't hear from them again because the cost of it is far more than they anticipate but the reason
for that is a proper partnership agreement is not just a question of the two persons involved
deciding to go into partnership pitching in a few bob and dividing the profits between
them and that's all to really need a one-page document we'll do and that'll suffice it won't
and that's the reality of it people don't understand that and i'm looking to address that
particular misconception and misunderstanding in this video because i want to look at what should
be considered and what does go in to making up a partnership agreement i'm looking at a data
partnership there that i've drafted for clients on my computer screen and i'll just go through it and
ask or have a look at the type of questions that i would be asking so firstly we're looking at the
type of business that the partnership is going to engage in when does it commence and how long is
it to last is it for a fixed period of time or is it to go on permanently in perpetuity
what will the partnership name be what will the place of business be a big one then is the
question of capital how much capital does each partner put in and how is it put in and in in
what format i mean for example could be put in by way of cash and or assets or just cash
could contributions for example be made in some other way to the partnership which might
be recognized in some sort of a capital account profits and losses how are the partners going to
share profits and losses perhaps 50 50 fair enough what about those of a capital nature
drawings how will the partners draw funds or money out of the account how will the partnership
accounts be maintained and reviewed from time to time salaries will there be a salary will there
be a salary if there's a loss would there only be a salary if there is profits being generated
by the partnership what about time devoted to the business how much time should each partner devote
should each partner devote the whole of his time and attention to the
partnership business or could they be engaged in something else for example another business
or indeed a job where will the bank account be held decision making decision making is a very
big one because if you have a partnership with only two partners you have the potential for
deadlock you have the potential for sort of an impasse in relation to let's say taking on a
new employee or indeed a new premises to maybe a divergence of opinion a difference of opinion
as to that decision and how do you break the deadlock there's also the question of ordinary
decisions that might be made on a day-to-day basis in the normal course of events running
let's say a coffee shop or let's say a shop i mean do you have the authority as a partner to
pay out cash for example up to a certain amount that is probably going to be necessary to run a
business from a completely practical perspective but you need to set a limit on the amount of
cash that only one partner can divvy out on an ongoing basis so again that needs to be looked
at the question then of decision making needs to be looked at that's a big one because inevitably
partners start off with the best intentions in the world but down the line differences of opinion
can arise and people can go genuinely in their own separate directions and develop different
interests and perhaps one of the partners is completely wedded to the business and perhaps
the other partner has become frustrated and disillusioned so the question of decision making
is important how will deadlock how will a standoff essentially be resolved accounts
obviously you need to make provision for an accountant uh doing the regular accounts and
ensuring that partnership accounts internal accounts and accounts which will be submitted
to the revenue commissioners the pay tax and that and so on will be looked after
negative covenants is another one no partner shall except for the consent and writing of the other
partner contract and in debt etcetera etcetera enter into a mortgage make any drawing from the
business carry on or be interested or concerned in any business employment etc so will there be
negative covenants what negative covenants will be in it to what extent will it cover you perhaps
being involved in some other business having another interest perhaps having a job
or a profession retirement what is the position in relation to retirement
how can you retire is the retirement age what happens your share of the partnership when you
do want to retire expulsion can expulsion arise it certainly should if a partner for example becomes
bankrupt if a partner breaks any of the negative common covenants or commits any
serious breach or persistent breaches of the partnership agreement can they be expelled
if the error could be expelled what procedure is to be adopted to do so
what happens if a partner fails to pay any money due to the partnership within 28 days of a written
request for that so the question of expulsion is something that would need to be looked at
the question of an outgoing partner's share assuming that there is an outgoing partner
what happens with the outgoing partnership is there going to be an option to purchase that for
the other partner that would make sense but again the other partner can't say or make a ridiculous
offer that seriously undervalues the value of the partner's share so again that something that needs
to be resolved what is the story if the other partner doesn't exercise the option or plays silly
boogers and doesn't give enough money and as i say undervalues the share of the departing partner
what happens then the question of documents then upon any partner leaving the partnership
all documents accounting records letters papers flyers anything related to the partnership should
be changed and amended to reflect the departing partner restrictive covenants that's another one
if a partner leaves for example i mean is there going to be a restrictive covenant preventing them
from being involved in a similar business for a certain period of time over a certain geographical
area for you know 12 months afterwards six months afterwards what's the geographical area 25 miles
50 miles etc arbitration any dispute rising from the partnership agreement should probably go to
arbitration first but what are the arrangements for arbitration what's the actual procedure
both partners then will seal it obviously or sign this rather and
witness it and the schedule will contain the number of shares or the contribution rather of
capital that each partner might make and you could also have a schedule then of permitted decisions
or permitted transactions for example that only one partner may be able to carry out or you could
have a schedule or a list of transactions that will require both partners agreeing
so you can see from what i've referred to there the various questions the various issues that
might arise that mary and jane or john and make going into a partnership saying to me
i want a simple one-page partnership document we're great mates we're great friends
who want to split the profits 50-50 coming to me and saying that and then i give them a quotation
for a partnership agreement a proper one and you can see how there would be a major divergence of
expectation or view in other words they have on the bulls as to what might be involved and
i never hear from them again which is fair enough it's up to themselves but i'm saying to you quite
clearly that if you want a partnership agreement a proper partnership agreement there's a lot of
issues you need to consider a lot of factors you need to consider and they are the ones that i have
covered in this video there may well be others and will depend on your particular circumstances for
example the intellectual property that one partner may bring to a partnership rather than the other
partner for example one partner may have invented something or may have a particular skill in
in graphic design or trademarks or something of that nature so i hope you find the video
useful i would appreciate if you gave it the thumbs up down below if you do thanks a lot