Essay Example on Partnership Agreement: Implications of Starting a Business Without One

A partnership is defined as an agreement between two or more people to start and oversee the operation of a business in a bid to make profit (Stafurik, 2020). This is achieved by sharing liabilities and profits, and the partners are guided by a partnership agreement, which is a documented that outline of the responsibilities and rights of the partners. When partners start a business with no agreement, and it is successful, it will have several implications. One of the implications is that there will be complexity in sharing profits since there is no written agreement on how profits made from the business should be shared. For a business to be successful, it needs a lot of dedication in terms of time, level of investments and skills. Therefore if the partners do not have agreement on how one should be rewarded for their efforts in making the business a success it may lead to unfairness and in sharing of profits.

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If partners start a business with no agreement deed and the company fails there are implications which would apply also. Unsuccessful business comes with losses and in such cases of the partnership is not separate entity legally; the partners are liable for losses and debts incurred. Since there is no agreement their assets are at high risk of being sold to pay debtors. This could lead to one partner paying more than the other partner to pay creditors. Another implication is that when the business fails, there are no consequences in case one of the partners quits the business, the other partner will be left with all the burden of paying off creditors. When there is no agreement also the partners can operate the business anyhow as they please because they don't have any specific rules and agreement to help them run the business in a particular manner.

A written agreement will help sustain a business as it develops over time because, the agreement helps in reducing disputes both external and internal in case it arises among the conflicts that can be solved in case they arise the partnership intentions are clearly defined in the agreement. The agreement also shows the terms and circumstances in which the business can be dissolved and even how the profits will be split either when dissolving or when the business is a success also on the dispute methods in case of any.

The agreement also helps the business partnership in avoiding unwanted dissolutions. This is because the law allows many ways in which partnership can be dissolved. They include when a partner dies, when a partner becomes bankrupt or insolvent, if one of the partners no longer owns the business legally (Fung, 2014). The agreement also clearly defines the partners on how much salaries they should be paying themselves from the business.

The partnership agreement also shows a clear guide on how the partner's assets and liabilities. If a situation comes up where partners or clients want to leave, in the partnership law dissolution can occur and new partnership can be formed. However, reconstitute and continue if there is such a clause that allows continuity in the partnership agreement. When the business nature remains the same, the clients are also the same or substantially unchanged, and finally, when the business or the firm's name also remains the same.

Conclusion

In conclusion, it is recommended individuals who would want to start up a partnership ensure that they have a partnership agreement, also known as partnership deed. This is because it protects the rights and interests of the partners. In the case where the business is successful or unsuccessful, profits and loses are shared equitably.

References

Fung, T. S. (2014). Negotiating regulatory coherence: the costs and consequences of disparate regulatory principles in the Transatlantic Trade and Investment Partnership agreement between the United States and the European Union. Cornell Int'l LJ, 47, 445.

Stafurik M. (2020). Importance of Partnership Agreement. Retrived from https://www.spglawyers.com.au/files/blog/importance_of_partnership_agreement.docx_maria_stafurik_nov_2016_4.pdf