General Partnership Agreement

When entering into a partnership with another it is important to enter into an agreement to discuss various issues the most important one being the manner in which you will share profits and losses.

Generally a partnership agreement helps you to think about and decide on the following:

  • Name of the partnership: You can use your own last names, or you can register a fictitious business name. If you choose a fictitious name, you must make sure that the name isn’t already in use-a name search therefore has to be conducted.
  • Contributions to the partnership: As partners it’s important to determine which partner is going to contribute cash, property, or services to the business before it opens — and what ownership percentage each partner will have.
  • Allocation of profits, losses, and draws: Questions partners need to ask themselves include; will profits and losses be allocated in proportion to a partner’s percentage interest in the business? Will each partner be entitled to a regular draw (a withdrawal of allocated profits from the business) or will all profits be distributed at the end of each year? You and your partners may have different financial needs and different ideas about how the money should be divided up and distributed, it is therefore important to discuss this.
  • Partners’ authority: Acts done by each partner bind the partnership and therefore its important to discuss and put in writting if there are certain decisions that have to be made with the consent of both parties for example sale of the patnership assets.
  • Partnership decision making: It is important to discuss how decisions will be made, whether they are day to day decisions or major decisions such as taking out loans. It’s important to also determine the weight each partner has in these decisions-simple put decide voting rights.
  • Management duties: You might not want to make ironclad rules about every management detail, but you’d be wise to work out some guidelines in advance. For example, who will keep the books? Who will deal with customers? Supervise employees? Negotiate with suppliers? Think through the management needs of your partnership and be sure you’ve got everything covered.
  • Admitting new partners: Eventually, you may want to expand the business and bring in new partners. Agreeing on a procedure for admitting new partners will make your lives a lot easier when this issue comes up.
  • Withdrawal or death of a partner. At least as important as the rules for admitting new partners to the business are the rules for handling the departure of an owner. You should set up a reasonable buyout scheme in your partnership agreement.
  • Resolving disputes. If you and your partners become deadlocked on an issue, do you want to go straight to court? It might benefit everyone involved if your partnership agreement provides for alternative dispute resolution, such as mediation or arbitration.
Ksh 7,023