Partnership Agreements: Starting new Ventures on the Right Foot

Summer is a great time to take a break, relax and enjoy some quality time with friends and family.  It is when we take these opportunities to relax that we are more likely to think up some of our best ideas.  An idea, with a little thought and discussion, may then turn into the beginning of an exciting new business partnership. Now, regardless of whether you are starting the partnership with your mother, your childhood friend or someone you met at business school, you should approach your interactions as business partners.  You should, among other things, discuss your business plans and expectations, determine the business’ structure, determine how you want to handle disputes, and consider the financial requirements of maintaining the business.  You should also be putting the decisions that are made in the appropriate type of agreement (for example, a partnership agreement).   A partnership is defined in the Partnerships Act as a relation “that subsists between persons carrying on a business in common with a view to profit.”  Therefore, a partnership can exist without a partnership agreement.  In fact, it may be tempting not to have a partnership agreement when first starting off – this is, after all, the honeymoon phase, and this is your mother or childhood friend we are talking about.  The problem arises when you and your mother or childhood friend have a fundamental disagreement with respect to the future of the business. How do you resolve this disagreement without it becoming personal?  And yes, you may have discussed this very situation and agreed at the time the partnership began, but what if you each remember this discussion differently.  Not only are you risking your business, you are also risking the relationship you have with the person close to you. An agreement may seem unnecessary when the waters are calm but remember, taking the time to have an agreement drafted up properly serves as a safety precaution which will hopefully protect your relationship in the event you succeed beyond your wildest dreams (or, in the unfortunate circumstance the venture is not the success you anticipated it to be).