Is partnership agreement legal contract?

Partnership Agreement

There are a different business structures that you can opt from when setting up your business. The four main forms of business structures commonly used by small businesses are:

• Sole trader: an individual trading on their own.
• Partnership: an association of people or entities carrying on a business together, but not as a company.
• Trust: an entity that holds property or income for the benefit of others.
• Company: a legal entity separate from its shareholders.

Every business structure has pros and cons. But you must choose that business structure that best compatible with your business requirements. You are required to investigate each business option carefully before choosing a business structure. Because it is an important decision that can determine the licenses you will need to operate.

Partnership agreement is a legally binding contract. Partnership agreement involves two or more co-owners( up to a 20) participating together in a business with an intention to make and share profits, and an understanding that these co-owners (or partners) act on behalf of each other in the business.

There are number of advantages attribute to partnership such as few government regulation; tax advantages;share risk ; no need to disclose information to public ; inexpensive to set up; more people to share work load and more people to share losses and business risks

In Australia, each state has its own partnership law such as:
• ACT – Partnership Act 1963
• NSW – Partnership Act 1892
• NT   – Partnership Act 1997
• QLD   – Partnership Act 1891
• SA   – Partnership Act 1891
• TAS   – Partnership Act 1891

The partnership law clearly explains the rules on how to set up a partnership. The Partnership law does not require that partnership contract must be in written form. Partnership agreement can be made orally. But to avoid the disputes it is good practice that you must enter into a written partnership agreement with your prospective partner. A written partnership form can be used as a point of reference in the case of disputes between the partners. Therefore a written partnership contract is a key document in any partnership.

The partnership agreement can also give all partners a clearer understanding of their rights, responsibilities and obligations as a partner. It is advisable to review your partnership agreement regularly.
The mutual rights and duties of partners, whether ascertained by partnership agreement or defined by the Partnership Act, may be varied by the consent of all the partners, and such consent may be either expressed or inferred from a course of dealing.
Partnership agreement template commonly covers a number of matters, including:

• the nature and purpose of the business ;
• capital contributions of each partner (cash as well as non-cash contributions such as time) ;
• profit and loss allocation ;
• authority of each partner ;
• how to admit new partners ;
• what happens if a partner dies…

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