Most partnerships begin with great enthusiasm and mutual trust, which is why many partners hesitate at the outset to talk about disagreement, exit or the allocation of losses, for fear it will be read as suspicion. Experience shows, however, that the most stable partnerships are those whose owners agreed on the rules early, when the relationship was at its best. The articles of association alone are often not enough, because they focus on the legal requirements for registration, while the details of the day-to-day relationship need a clearer agreement between the partners.
First: Shares and Contributions
Define clearly what each partner contributes, whether money, work, relationships or intellectual property rights, and how these contributions are valued. Agree on what happens if the business needs additional funding: is everyone obliged to contribute in proportion to their shares? And what if one of them cannot?
Second: Management and Powers
- Who runs the day-to-day business, and what are the limits of their powers?
- Which decisions require the approval of all partners or a special majority?
- Does a partner working in the business receive a salary separate from their share of the profits?
- How are meetings held and decisions documented?
Third: Profits and Losses
Agree on how and when profits are distributed, and whether part of them is retained for reinvestment. It is equally important to agree on how losses will be handled, as this is the aspect usually overlooked until it happens.
Fourth: Entry and Exit
This is the most important part of a partners' agreement, because it governs the moments of change when disputes are most frequent:
- Sale of shares: do existing partners have a right of first refusal before shares are sold to third parties?
- Valuation: how is the value of a share determined on exit?
- Involuntary exit: what happens on a partner's death, incapacity or breach of their obligations?
- Competition: may a departing partner carry on a competing activity? For how long?
- Admission of a new partner: what conditions and approvals are required?
Fifth: Resolving Disputes
Set up a tiered mechanism for resolving disputes before resorting to the courts, such as direct negotiation, then mediation, then arbitration or the competent courts. And specify how deadlocks will be handled when votes are tied on a fundamental decision.
Talking about disagreement before it happens does not mean expecting it; it means making sure it does not tear down what you have built together.
It is important that the partners' agreement is consistent with the company's articles of association and with the provisions of the Companies Law, so that the two documents do not conflict when they are needed. At our firm we help partners draft clear and balanced agreements that protect everyone's rights and support the continuity of the business.