Dismissal in a Partnership Agreement
20) The death of a partner
Should the unfortunate event of the death of a partner occur, it is important that you agree what will happen with the business. If you decide that the business will continue to trade, then you will have to state how the deceased partner’s share of the business will be split between the remaining partners.
You may give the deceased partner’s estate a share of the business assets as a cash settlement which may further be paid out in instalments. If the business is to be dissolved, you will have to work out how the business will be split between the remaining partner’s which may refer back to section 19.
Example: “In the event of death of a partner, it is agreed that the partnership will continue and that the deceased partner’s share of the business will be given to the remaining partner(s) on the date of the death.
The deceased partner’s estate will be entitled to a share of the business assets including good will. This figure will be taken from the business’ balance sheet which will be completed up to the date of death and will be compiled by the business’ accountant. The share will be paid out from the date of death in four equal instalments after three, six, nine and twelve months”.
21) Unfair competition
Should a partner decide to leave the partnership, you should agree terms that determine what type of employment the partner can go into. This may state that the leaving partner cannot go into employment that is in direct competition with the partnership. Example: “It has been agreed by all partners that upon the event of a partner leaving the business through any clause, any future employment will not provide direct competition to the business”.
22) Dismissal of a partner
You must decide terms that will detail when a partner can be dismissed from the partnership and may include breach of contract, personal finance problems, linking personal debts to business assets, etc. You should also state if they will be relieved with a pay out, such as their initial investment, depending on the financial situation of the business. Example: “A partner can be dismissed from the partnership if they breach the agreement contract or tie any personal loans to the assets of the business. The dismissed partner will be entitled to any contributions they have given to the business listed in section 6 and a return of their initial invested capital stated in section 5. This cash payment will be paid in four equal instalments from the date of the release after one, two, three and four months”.
23) Signatures
Finally, you should include a section to provide for signatures of all partners along with the date and place (the address where it was signed). A witness should also sign the agreement when they have witnessed ALL partners signing the document.
Summary
Today, partnerships are one of the most popular forms of business around and these numbers are still increasing as people venture into starting a new business. Partnerships are seen to have an advantage over sole-traders due to the amount of initial investment that can be raised which increases with the number of partners. Further, partnerships are generally larger in size than sole-traders and consequently other sources of finance (loans, overdrafts, etc) will be more favourable to these types of business. Despite the numerous advantages of a partnership, there are disadvantages that sadly result in partners dissolving their business because conflicts can’t be settled between them. It is therefore important that you choose your partners with an added respect to attitude and personality to minimise the level of conflict that may occur. Partnerships are governed by either The Partnership Act, 1890, or The Limited Partnership Act 1907, depending on the form that they take. This law is used to settle issues in a partnership which could go against you in some cases. It is therefore important that you settle a Partnership Agreement that will give details of your business and address all issues that may arise along with actions that will be used to solve such issues. By doing so, it will give all partners the security of their position within the business and the consequences that will occur from certain actions by themselves and the other partner(s). Fur ther, it will limit the need for your partnership to consult the Partnership Acts to determine the outcome of an issue.
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