How to set up a business partnership agreement
Toronto business lawyer Anton Katz says it’s advisable that people going into business together have a written partnership agreement in place rather than just relying on the common law or the Partnerships Act.
He notes a partnership comes into existence when two or more persons carry on business together with a view to a profit — unlike sole proprietorships or charities. Relying on the common law is uncertain, and the Partnerships Act, while it does set out a number of sections that pertain to partnership, might not be appropriate for your situation, he says.
“You may want to override or modify certain sections — either in whole or in part,” he tells AdvocateDaily.com. “The benefit of having a written agreement is you can craft your own written relationship that will govern you in the years ahead.”
While one size does not fit all, a typical partnership agreement will set out the names of the parties involved. Katz notes that it might be a partnership between two individuals or between corporations or other legal entities. However, as a threshold, you would want to clarify who the parties in the partnership are.
“Beyond that you could indicate right from the beginning what the term of the partnership agreement is to be,” he says. “Whether the term is to be indefinite or if it is a fixed-term contract, that can be set out in the agreement itself.”
Other issues worth including in a partnership agreement can include:
– How profits are to be shared between the partners;
– Indemnity from the profit-sharing partners for any liabilities of the partners;
– Circumstances under which the partnership can come to an end;
– Admission of new partners;
– Decision-making thresholds; or
– Defining roles and responsibilities.
Katz says while some of these provisions may already be dealt with in the Partnerships Act, one important reason for having a written agreement is that the law can quickly change.
“Statutes can be amended. If you have a contract in place with a defined set of rules, obligations and responsibilities, it will not be dependant on amended legislation in the future,” he says.
A quick Google search can reveal a plethora of boilerplate partnership agreements, which can be tempting to a business just starting out. However, the benefit of having a lawyer assist you with your partnership agreement is key, says Katz.
“The benefit of a lawyer is that he or she will walk you through the different clauses, making sure they are relevant for your circumstance. Some clauses may be relevant, some may not be,” he says. “Some clauses you may understand and some you may not perfectly understand. This is why it makes sense to have a professional go through the agreement with you.”