Partnerships are often formed when setting up a small business. You get the benefits of sharing the journey with someone, not to mention double the ideas, double the passion, and double the funds. Sounds like a great idea!
There is no legal requirement for partners in a business to draw up a partnership agreement, but we strongly recommend you have one, even if you are going into business with your best friend or your mother. You can never foresee all the problems that you might run in to and even when both parties have nothing but the best intentions, things can still go wrong. You don’t want an assumption that went unsaid to come back and haunt you later.
You don’t have to go to your lawyer and prepare a formal contract (although if large sums of money are involved this is obviously the best way to go). You can write it yourself – a page or two outlining the responsibilities of each partner and how you intend to share the profit and loss of the business is a good start. You should also include the details of what should happen if one partner wishes to leave the partnership. Any other details relevant to your situation can be included and then both parties need to sign the document and both parties should retain a hard copy.
If you don’t write your own agreement, your partnership will be assumed to follow the provisions in the Partnership Act. However, these may not always be things you want in your partnership agreement. For example, the Act expects the profits and losses to be shared equally among partners but you may want a different arrangement. To ensure your partnership is specific to your requirements, write your own agreement.
We hear plenty of stories from business owners whose partnerships went sour – often when they least expected it. Protect yourself and your business by taking the time to prepare a partnership agreement before you start out. It doesn’t take a great deal of time, but it ensures you both start off on the same page (pardon the pun!).
FYI, you can view the various Partnership Acts for each state in Australia here: http://www.austlii.edu.au/cgi-bin/sinosrch.cgi?method=legis&query=partnership+act&meta=%2Fau&mask_path=