A partnership is a formal arrangement by two or more parties to manage and operate a business and share its profits. To expand your business, you might have to consider partnering with other businesses to achieve your goals. In doing so, it is important to establish clear legal requirements for your partnerships.
A partnership agreement is a written agreement between two or more individuals who intend to form and carry on a business for the purpose of making a profit. This legal document is important for running a new partnership business; this serves as a form of protection for the parties involved. It states the nature of the business, the monetary contribution of each partner, and the responsibility and rights of each partner.
The partnership is guided by the Companies and Allied Matters Act, according to the Act, the maximum number of Partners a Partnership can have is 20 (twenty), except law firms and accounting firms.
Also Read: All you need to know about partnerships
The partnership agreement is also known as the Partnership deed, it should contain the following;
Place of Business
The place of business is a specific location where the partnership business will be conducted. The agreement should include the following:
- The name and address of the place where your business will be conducted. If you are using a co-location facility, this should be listed as well.
Purpose of Business
The purpose of your business is to fulfill a need or desire for your customers. Your goal is to create something that people will buy, use and enjoy. The product or service you provide should be unique and attractive to potential customers. You should also have a plan in place for how you will sell your product or service once it’s launched.
Capital contributions are money or property that each partner contributes to starting the business. They can be in the form of cash, property, or services. The amount of capital contribution made by each partner is called their capital contribution.
A partnership agreement should include provisions about how much each partner will contribute to start the business and what happens if one partner wants to leave before completing their share of capital contributions.
Distribution of Profits and Losses, Interest and Withdrawals.
The income from the project will be distributed in the following manner:
- Profit sharing between partners according to the agreed profit sharing ratio.
- Interest and withdrawals on the balance of funds held by partners for a period of three years after completion of construction works or any other significant events that may take place in this period.
Management and Voting Requirements
The partnership agreement should specify how the partners will make decisions. It should also state who makes key decisions, how they vote on those decisions, and what is required for a decision to pass.
In general, this is done by establishing a voting structure: one partner has one vote (or none) while each partner has an equal number of votes. The partnership agreement may also specify that certain kinds of issues require unanimous approval from all parties before being decided upon; e.g. if there are three parties involved in making a purchase bid on a certain item or service, then no single party can block its completion unless all three agree not to do so
The term of a partnership is the duration of your business relationship. A term can be for a specific period, or it can be indefinite in nature.
Once you have formed your business partnership and signed the Partnership Agreement, it’s important to understand what happens when one or all of the partners decide to terminate their membership in the company. In order for this situation to occur legally, each partner must give notice (a written statement) indicating their intention to leave before termination occurs.
Dissolution of the Partnership
This explains the circumstances in which the Partnership can be dissolved and how the remaining assets will be divided between the Partners.
Once the document is completed, all the partners must sign the document, all the partners must provide a witness to the document, and all the partners must have different witnesses. The witness must be at least 18 years old, must hand fill in the necessary information, and sign the document. After the document has been duly signed, each Partner must keep at least one copy each for record purposes.