A partnership is legally defined as an association of two or more people (up to 20) who aim to associate to establish a joint business for profit. A partnership agreement is essentially a binding contract drawn up between business partners, aimed at regulating their legal and business relationship. When people join forces for a specific business purpose (e.g., opening a business), it is advisable that they put their agreements in writing in order to prevent future disputes and create certainty regarding how the partnership will be managed.
How to draft a partnership agreement
As a general rule, it is recommended to draft a partnership agreement through a lawyer with knowledge and experience in the field, who will be able to draft the agreement for you tailored to the needs of the partnership and the partners. There are different types of business goals, and the partnership agreement should be adapted to the specific circumstances of each partnership and partners.
Partnership registration
According to Section 4 of the Partnerships Ordinance, the partnership must be registered within 30 days of its establishment by submitting a signed notice to the Registrar of Partnerships. It should be noted that the absence of partnership registration will not prevent its continued operation, but it may lead to the imposition of fines and additional sanctions on the partnership.
Sections and possible mechanisms in a partnership agreement
As we've said, it's very important to create alignment between the partnership agreement and the partners' goals and the specific circumstances of the partnership. There are different types of mechanisms that can be established in the partnership agreement, all according to the partners' wishes and the partnership's business needs.
Examples of clauses that can be included in a partnership agreement:
- The name of the partnership, its objectives, and its operational period – the name of the partnership, its objectives, and its term can be determined.
- Partners' Roles – A section can be created describing the roles and responsibilities of each partner.
- Partnership Ownership Relations – The ownership relations of each partner in the partnership can be determined by agreement.
- The manner and method of profit distribution – partners' salaries and profit distribution can be determined within the scope of partnership business management.
- Partners' guarantees for the partnership – mechanisms for partners to guarantee the partnership can be established.
- Dispute Between Partners - A clause that anchors the way a dispute between partners will be managed, should one arise, such as prior agreement to manage the dispute through arbitration or mediation rather than through the court.
- Removing a partner from the partnership – according to the law, a partner cannot be removed from the partnership, regardless of the majority, unless this is explicitly stipulated in the partnership agreement.
- Partner's withdrawal from a partnership.
- Dissolution of Partnership – How the dissolution of a partnership will be carried out.
Lawyer for drafting a partnership agreement
It is recommended to draft the partnership agreement as soon as possible, in the initial stages of establishing the business. A correctly and professionally drafted partnership agreement will protect the partners' rights, prevent unnecessary disputes, and establish agreed-upon mechanisms for how the partnership will be managed.
If you require a professional partnership agreement that is specifically tailored to your business goals and the desires of your business partners, we invite you to contact our firm for legal counsel. We will be happy to assist you.