Ownership and Voting Rights in a Partnership Agreement
The ownership of the business may be split equally or you may split it relative to the initial investment and contributions of each partner. Either way, the ownership percentage for each partner should be recorded.
It should be further noted that just because a partner has less ownership than others, it is not to say that they are less liable for any debts accumulated by the business: everyone is equally liable although limited partners are only liable up to the amount that they initially invested.
Example: “The ownership of the business will be split equally with John Smith owning 50 percent and Clare Jones also owning 50 percent. Responsibility and liabilities of the business will be split equally between all partners”.
8) Role of the partners
This section will outline the level of employment for each partner: full or part time. It will also summarise each partner’ s role in the bu siness in the form of a job description. Example: “All partners agree to work full time which will associate of no more than a 40 hour week or a period that will be agreed by all partners. John Smith will be issuing advice and offering his assistance to those businesses that require such and Clare Jones will be producing the accounts of businesses requiring the service. This is further subject to change with the agreement of all partners”.
9) Decision making and voting rights
If a partner makes a decision that has created an issue or problem, the other partners will still be responsible for their action and will be equally liable to the outcome. Although at times you expect each partner to make their own decisions, you should determine the situations that will result in the need for a decision based on the views of all the partners. For example, this may be when a cheque needs to be issued greater than the sum of, say GBP 100, or the introduction of a new customer to your service, etc. Basically, it may be a decision that could potentially change the business in some way. You should provide an alternative action should you and your partner(s) not be able to reach a final decision. This may be that you consult a third party such as an accountant, consultant, etc depending on the relevance of the issue, or maybe a certain partner will have the final say.
Example: “All partners can make their own decisions unless it involves the entry or termination of customer contracts, leasing contracts or employment contracts; or the purchase of equipment over GBP 100. In which case, the decision will have to be agreed by all partners. In the event of the decision not coming to a compromise, the casting decision will be made by Clare Jones.
10) Profit and loss sharing
This is a section that should be looked upon with great concern. It will state how profits will be divided between partners and when each partner has the right to draw any of this money from the business. This may be periodically, say 25 percent every three months, or their entire share at the end of the financial year. You may also state the amount of profit that each partner will invest back into the business. Example: “Profits and loses will be split at 50 percent for John Smith and 50 percent for Clare Jones. All pr ofits will not include goodwill and can be drawn from the business at the start of the new financial year or as to be agreed by all partners. For the first five years from the date the business commences trading, all partners will re-invest 10 percent of their profits back into the business at the start of the new financial year. This may change with the consent of all partners. The profits will be determined by the partnership’s accountant outlined in section 13″.
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