A partnership agreement is a legally binding contract between two or more parties who agree to share the ownership, management, and profits of a business. A partnership agreement can be vital for the success and stability of a business, as it defines the roles, responsibilities, and rights of each partner, and sets the rules and procedures for resolving any disputes or issues that may arise.
In the UAE, a partnership agreement can take different forms depending on the type and location of the business. For example, a partnership agreement for a mainland company must comply with the UAE Commercial Companies Law, while a partnership agreement for a free zone company must follow the regulations of the respective free zone authority. In addition, a partnership agreement for a foreign-owned company may require a local sponsor or agent, who acts as a silent partner and holds a certain percentage of the shares.
Key Elements of a Partnership Agreement
Regardless of the form and nature of the partnership agreement, there are some essential terms and conditions that it should include to ensure the clarity, fairness, and enforceability of the contract.
Here are some of the key elements that a partnership agreement in UAE should cover:
- Business Name and Objectives
The partnership agreement should state the name and legal form of the business, as well as the objectives and activities that the business will engage in. The name and objectives of the business must be registered with the relevant authorities and must not violate any laws or regulations. The partnership agreement should also specify the duration of the partnership, whether it is indefinite or for a fixed term.
- Capital Contribution and Ownership
The partnership agreement should indicate the amount and form of capital that each partner will contribute to the business, and the percentage of ownership that each partner will hold. The capital contribution can be in cash, assets, services, or goodwill, and it should be valued and recorded in the agreement. The ownership percentage should reflect the proportion of the capital contribution, unless otherwise agreed by the partners.
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- Profit and Loss Distribution
The partnership agreement should stipulate how the profits and losses of the business will be distributed among the partners. The profit and loss distribution can be based on the ownership percentage, or on a different ratio agreed by the partners. The partnership agreement should also specify the frequency and method of the distribution, such as monthly, quarterly, or annually, and in cash, reinvestment, or reserve.
- Roles and Responsibilities
A partnership is based on the mutual benefit and complementarity of the partners, who each bring a specific value or expertise to the business. Hence, each partner should be clear about their role and responsibilities in the partnership, and how they contribute to the common goals and vision. This gives the partnership a sense of direction and accountability, and ensures that each partner fulfils their duties diligently. If a partner fails to meet their obligations or expectations, the partnership agreement should specify the consequences and remedies for such breach.
- Management and Decision Making
The partnership agreement should outline the roles and responsibilities of each partner in the management and operation of the business. The partnership agreement should also define the authority and scope of each partner in making decisions and representing the business. The partnership agreement should establish the procedures and quorum for holding meetings and voting on important matters, such as adding or removing partners, changing the objectives or activities of the business, or dissolving the partnership.
- Partner admission and removal
A partnership agreement should also include the terms and conditions for the admission and removal of partners, as this can affect the structure and continuity of the business. The admission of a new partner may require the consent of all the existing partners, as well as the amendment of the partnership agreement and the incorporation documents. The removal of a partner may also depend on the voting rights and the grounds for removal, such as breach of contract, misconduct, or insolvency.
- Dispute Resolution and Termination
The partnership agreement should include the mechanisms and processes for resolving any conflicts or disputes that may arise among the partners or between the partners and third parties. The partnership agreement should also state the grounds and conditions for terminating the partnership, such as the expiration of the term, the death or incapacity of a partner, the breach of the agreement, or the mutual consent of the partners.
The partnership agreement should also specify the rights and obligations of the partners in the event of termination, such as the liquidation and distribution of the assets and liabilities of the business, the continuation or dissolution of the business, and the non-compete and confidentiality clauses.
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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.
Syed Hassan Ali has an experience of 13 years and is highly specialized in providing legal consulting for all types of notary requirements. By utilizing his diverse and deep knowledge, he has consistently aided individuals and organizations in finding flexible and timely solutions.