The Importance of Having a Partnership Agreement

Life is unpredictable. Circumstances and relationships change. This is especially the case in business. Partnership agreements are vital to businesses with more than one owner. If something happens to an owner or there is a dispute between the owners, a partnership agreement is the most useful and convenient way to manage your business.

What is a Partnership Agreement?

A partnership agreement is a mutual agreement between two or more persons that they will carry on business in partnership on the terms stated in the agreement.

What Should be Included in a Partnership Agreement?

A partnership agreement considers a range of issues relevant to the running of your business. Some of the matters to consider include the following:

  1. Partners in a business share income, losses and control of the business. Therefore, it is important that a partnership agreement outlines how income or losses will be distributed to the partners and how the business will be managed.
  2. A partnership agreement governs the relationship between the partners in a business. It needs to cover the rights, responsibilities and obligations of the partners.
  3. A partnership agreement can help prevent disputes about what each partner brings to the partnership and what they are entitled to receive from the profits of the business. This is especially important for tax reasons if the income or losses are not distributed evenly among partners.
  4. If a dispute does arise between the partners, a partnership agreement can outline how it is to be resolved. Often a partnership agreement discusses the possibility of mediation. It also should discuss what will be the responsibility of parties to the dispute and who will pay for what.
  5. Sometimes, a partner wants to leave the business. A partnership agreement needs to consider what happens when the business continues and also when it doesn’t continue. A partnership agreement also needs to consider what happens when a partner departs from the business, is terminated or dies.
  6. If a partner departs from the business or is terminated, a non-compete and non-solicitation clause is important. This restricts a partner from competing with the partnership’s business within a defined area and time period and soliciting employees and customers from the partnership.
  7. Confidentiality and intellectual property (IP) clauses are also relevant. This restricts partners and former partners from disclosing and using confidential information and IP belonging to the partnership.

To speak to a lawyer about drafting a partnership agreement for your business, call Vault Legal today on 1300 002 212 or email us at

Key words: partnership agreement, confidentiality, intellectual property, non-compete and non-solicitation.