No Partnership Agreement

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EFFECTS OF NO PARTNERSHIP AGREEMENT

Not having a written partnership agreement can prove extremely dangerous for the business partners, given the investment that they will be making in the advancement of their commercial enterprise.

The rationale for undertaking a partnership agreement potentially includes the following elements:

• Insuring the continued commitment of the partners to the advancement of their collaborative business enterprise.

• Enabling the partnership to grow and obtain financing, through a structured approach.

• Allowing for the retention of top talent, allowing remuneration to be pushed back and be based in part on their performance and contribution to the partnership over the foreseeable future.

• Allowing for an exit strategy, both in circumstances where there is a desire to undertake an exit (one’s own or the ouster of another partner) and where circumstances make an exit the appropriate course of action (i.e. death, disability, personal circumstances).

• Provide a mechanism to capitalize on buy-out opportunities where there is substantial value in the proposed purchase price.

• If someone reduces their efforts in the partnership, have a mechanism to address this reduction (either by way of reducing their partnership stake or reducing their allocation from the partnership units that are being paid out), as opposed to the current system which has no such controls.

• Maintaining and strengthening the reputation of the partnership.

The potential dangers of not having a partnership agreement could include the following:

• The partnership may lack a clearly established growth strategy and as such could more easily be eclipsed by its competition. • The partnership's reputation, both externally and internally, may falter.

 • The commitment and energy of the partners might move in a negative direction, as opposed to being incentivized to move forward.

• Key talent may either be lost or be over-paid, without the means to defer a portion of the pay and tie it into their productivity.

• Key talent could move to the competition or become the competition, as they don’t see a comparable incentive to remain with the collaborative enterprise.

• Increased possibility of client loss with the greater potential of key talent departing the partnership.

• No defined exit strategy for any of the partners, which in turn devalues their shares and their incentive to grow the partnership.

• No defined means to capitalize upon opportunities available to the partnership.

However, simply having just any partnership agreement is not of itself sufficient to attain the expansive benefits and protections from such a contractual arrangement, as there is a significant difference between your generic / boilerplate partnership agreement and a customized partnership agreement.

For legal counsel as to your business partnership or joint venture, contact lawyer Christopher Neufeld with Neufeld Legal Professional Corporation at Chris@NeufeldLegal.com or 403-400-4092 (Calgary, Alberta) 416-887-9702 (Toronto, Ontario). 

   

Neufeld Legal Professional Corporation is a Canadian law firm operating out of Calgary, Alberta and Toronto, Ontario, and is focused on corporate transactional matters that impact local, national and international businesses in their quests for corporate success.

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