Partnerships
Importance of a Partnership Agreement
Now and then we come across business partners who don’t have a written partnership agreement in place; they just go and register an ABN together and perhaps list their names on business letterhead and contracts. This is not the way to go. It can lead to misunderstandings and disputes, which can result in serious financial downside.
It’s advisable to develop and enter into a well drafted partnership agreement (and agree on a written business plan, which should ideally be attached to the agreement) before going into partnership. (Of course, before deciding on a partnership, it is advisable to obtain structuring advice).
A partnership is a relationship, and relationships require effective and regular communication. An agreement is a part of communication and relationship-building. It helps to ensure that the partners have a common understanding and expectation, to air and address areas of concern and to build trust.
An agreement helps the parties to consider what types of issues might arise in the future and to deal with them calmly and dispassionately while the relationship is good and when the shoe could be on any partner’s foot (so to speak), rather than wrangling in the heat of a dispute about what the (implied) "understanding" was or what is “fair”. (It’s remarkable what different views people have about what is “fair”, and how an appeal to “fairness” often seems to coincide with the appellant’s interests). And importantly an agreement helps to provide certainty, so that the parties can readily ascertain an answer, quickly “move on” and avoid getting bogged down in a time-and-money-wasting dispute, which often destroys the relationship (and can have serious repercussions in the personal lives of the parties).
In Victoria, partnerships are governed (in part) by the Partnership Act 1958 (Vic). For information on the effect of the Act, see:
See also our articles on structuring and other aspects of business relationships.