Business Partnerships

A partnership comprises of two or more individuals carrying a business that are all equally responsible for managing the business. Partners generally share profits and losses of the business and are jointly liable for the debts of the partnership.

When entering into a partnership relationship, careful consideration should be given to the nature of the relationship and any prospective issues such as potential exposure to liability for acts and omissions of the other partner, and how your relationship will be documented.

In general partnerships, all partners are equally responsible for the management of the business and for the payment of its debts. In limited partnerships, one or more of the partners are limited in their responsibility to pay the debts of the business.

Benefits of partnerships are relatively low costs to establish, risk and rewards are shared, wages depend on individual skills and assets contributed by each partner, and losses can be accessed directly by partners. Limitations of partnerships include exposure to joint liabilities that limits opportunity for asset protection, and there may be conflict or disagreements when decisions are made that would affect the business.

A partnership agreement, as a bare minimum, needs to be legally binding and include specific details relating to:
- How partnership disputes are to be determined;
- How proceeds and profits are to be divided; and
- How any business debts or shortfalls are to be paid.

Entering into a written partnership agreement can assist the parties involved to clarify relevant rights and obligations. It also allows the parties to avoid any misunderstandings or disputes. In the absence of an agreement, there will be no documentation to rely on if a dispute arises. This can lead to many complicated issues that may add significant cost and stress to an already stressful situation.