Partnership agreement: What should a partnership agreement include?

Getting into a partnership is a sensitive process, and in the UAE, it requires some prior knowledge about how a partnership agreement should look. Failure to understand the fundamentals of a partnership can lead to you being exploited by your partner. Although it is obvious what a partnership agreement should entail, many people still end up in unfavorable business partnerships. To protect you from any problems in the future and also to ensure that you enter a fair agreement,

Things that a partnership must include in a Partnership Agreement:

• Expectations and responsibilities

One of the main reasons one opts for a partnership is knowing that each partner needs the other for a particular purpose or set of skills. Therefore, each partner needs to understand their role in the partnership and what duties they are expected to carry out. That way, an agreement acquires purpose, and each partner is expected to fulfil their obligations responsibly. If a partner does not perform their duties as expected, the actions that can be taken against them are included in this section.

• Contribution of capital

Depending on the kind of partnership, every partner must contribute part of the capital for running the business organization. You have heard of terms like a full partner and a junior partner. All these are determined by the fraction of the whole capital the partner contributes. The amount of capital contributed represents how much ownership of the business the partner will get.

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• Allocation of profits

In the UAE, most profits are distributed to partners with respect to the size of their shares. Usually, Partners with the more significant stakes will get more profits and vice-versa. However, different partnerships can have different methods of profit distribution which must be stated in the partnership agreement. The time to share profits should also be indicated in the partnership agreement. For example, some choose to do it monthly, others annually and some even weekly. It primarily depends on the nature of the business.

• Financial Auditing and report

Every partner has the right to know the financial standings of their partnership. In the agreement, it must be clear when financial audits and reports should be presented. Some partnerships go for annual financial reports, while others opt for monthly audits and reports depending on the size and scope of the partnership. It is important to note that most partnerships tend to hire external financial auditors for their reports since they are independent and provide a clearer, unbiased picture.

• Protocol for decision making

All partners must be part of the decision-making process in any partnership. Nevertheless, there should be a clear protocol on how decisions should be made whilst following the proper channels. In the UAE, it is illegal for one partner to act on behalf of the others, especially in matters that generally affect the all partners. The partnership must include the right channels to follow when implementing a new partnership agreement decision.

• How to resolve disputes

Because business partners are prone to have different opinions disputes are bound to arise. In many cases such disputes come about when one partner is not being acknowledged or if a partner goes against the rules. There should be a straightforward way of handling conflicts between partners that will be applied in such instances.

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• Admission and removal of a partner

A partnership can decide to expand or reduce its members depending on how the business is going. However, adding or removing a partner is not a decision left for one partner to make. Most partnerships in the UAE have a culture that is followed when handling partner addition or removal issues.

Understanding Business Partnerships in the UAE

While having a well-outlined business partnership is ideal, you should know that there are other documents that you may need to ensure that you are recognized as a partner. Note that you need to ensure that your name appears on all official company documents proving you to be a legal and official business partner. These documents include the memorandum of association of the company and the company trade licenses. The notary public must also amend both documents.

If you are getting into a Business partnership contract for the first time in the UAE you will find it much easier to use the help of experts. This is where Notary Public Dubai comes in. As one of the top  firms in Dubai with decades of experience our team can walk you the whole partnership agreement process ensuring all important details are taken care of Interested?

Contact us today for an initial consultation.