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A partnership is a form of business organisation in which two or more individuals (partners) manage and operate the business with a view to making a profit. Each partner shares a fixed proportion of the partnership profits and losses.

A partnership agreement is an agreement between two or more persons (partners) setting out the terms and conditions under which they will operate a for-profit business partnership. The partnership agreement will describe the cash contribution requirements for each partner, the distribution of profits and losses between partners, as well as other duties and obligations. The general partnership agreement does not have to be filed or registered.

A fixed term partnership is sometimes used where there is a clear end date for the partnership.

Capital Contributions are the assets that this Partner will contribute to the Company including cash, property and services. One Partner may provide cash while another Partner may provide engineering services. Or each Partner may contribute a combination of assets.

To help avoid confusion in the future you should describe these contributions thoroughly now. Be specific about quantities and amounts.

A distribution is an amount paid to each Partner usually out of the profits of the company. Distributions are paid in proportions that are agreed to by all Partners.

Profits and losses can be distributed: as a fixed percentage of profits (or losses) for each Partner; or as an equal share of profits (or losses) for each Partner; or in proportion to the capital contributions of each Partner.

Note that this distribution is specific to ongoing profits and losses and may be different from the method of asset distribution used later on liquidation.

The day-to-day management of the company can be performed by an individual Managing Partner or through the equitable participation of all Partners through majority votes where necessary. Note that where there is a Managing Partner, many substantial issues will still be resolved by a vote of all Partners.

A partnership may have a managing partner who is responsible for managing the business. The managing partner will make all the day-to-day decisions of the partnership. All partners in a general partnership will have the right to participate in the management and control of the partnership unless the management obligations are delegated to one or more managing partners in the partnership agreement.

The rights of all Partners, including minority Partners, need to be respected. Some business decisions can substantially change the nature of the business, possibly greatly increasing the risk to individual Partners. In general, all Partners should have a voice in any decisions that could substantially affect their business interests.

On issues where Partners are required to vote, voting may be proportional to each Partner’s relative Capital Contribution or proportional to each Partner’s relative profit entitlement or there may be an equal vote where each Partner gets one vote.

Even though the Partnership will be managed day-to-day by a Managing Partner there will still be substantial issues that require a vote of the Partners.

In general, business decisions will be resolved by a majority vote of the Partners. However where the impact on individual Partners will be significant, the Partnership may wish to resolve these decisions through a unanimous vote in order to protect the interests of all Partners.

The Partnership can end by agreement of the Partners or the Partners can expressly agree that the Partnership will end at a specified date, or upon completion of certain tasks. In some jurisdictions the Partnership may end on the death or bankruptcy of a Partner unless the Partnership Agreement expressly states otherwise.

Where there is no Partnership Agreement, the Partners can make a written submission to the other Partners to withdraw from the Partnership. A Partnership Agreement should protect the Partnership and the remaining Partners from the unexpected withdrawal of an essential Partner. If the voluntary withdrawal of a Partner offends a term of the Partnership Agreement, then the withdrawing Partner may be liable for any damages suffered by the Partnership or the remaining Partners.

Yes, a Partner can transfer their interest in the Partnership, if the Partnership agreement does not restrict a transfer. If an individual Partner becomes bankrupt then a third party may have a claim against that Partner’s interest in the Partnership.

However, depending on the terms of the Partnership Agreement, the recipient of a transferred interest may not be given any power to vote or to participate in decision-making. The rights and obligations of a recipient of a Partnership interest may be limited to the profits and losses of the Partnership. This is to ensure that the remaining Partners are not affected by the extravagance or incompatible notions of an unexpected new Partner.