By Sanette Viljoen
It is always important that partners should enter into an agreement. When a business starts out it always goes well, but the chances of things going wrong are not unlikely.
This is why it is important for partners to understand the nature and scope of such an agreement. A partnership is based, inter alia, on good faith between the partners. The partners should also strive together towards achieving the partnership’s goals.
However, the terms of a partnership must be spelled out carefully and exactly so that, when the relationship between the partners is terminated, the rights and obligations of the parties are clearly outlined.
While everything progresses peacefully and the partners enjoy all the benefits of the joint objectives, it is unlikely that a need to review or regularly assess the agreement will arise. However, should the partnership suddenly come to an end or be endangered, everybody suddenly wants to check the agreement. Upon the death of a partner the heirs will want to see what they will inherit.
Should the partnership be endangered, it is in many cases too late to have the agreement reviewed at that stage. Therefore, make sure that the agreement is adequate and is regularly reviewed.
Examples of risks that partners should regularly consider:
- Who is liable when a claim is brought against the partnership after it has already been dissolved?
- What happens when one of the partners dies? Who is liable for the debts?
- What happens when one partner is sued for misconduct and adds the other partners to the claim?
- Can one partner hold the others liable for his personal behaviour?
An allegation by a partner that they simply never considered this risks simply will not hold water if a partnership is faced by a claim. It will only make it much more complicated do get rid of your burden of proof.
It is therefore extremely important to address potential risks, liabilities, possible claims, etc., in the agreement. It often happens that much emphasis is placed on how the finances are going to be paid out without considering the risks.
Therefore, do not see it as a bother to enter into a proper contract. It is essential and can resolve many future quarrels.