Importance Of Partnership Agreements – Important Clauses In A Partnership Agreement

A partnership agreement is a legally binding contract between two or more individuals or entities who agree to operate a business together. The agreement is crucial for clearly stating out the terms and conditions of the partnership. It establishes roles, responsibilities and profit-sharing arrangements, while also providing a framework for managing the business and addressing potential conflicts. In Nigeria, partnerships are primarily governed by the Company and Allied Matters Act (CAMA) 2020 and the Partnership laws of Each State.

Importance of a Partnership Agreement

  • A partnership agreement helps to give clarity and to streamline any form of ambiguity concerning the roles and responsibilities of each partner.
  • A partnership agreement helps to determining specific profits and loss sharing, how it will be divided amongst the partners, often based on ownership percentage or other agreed upon terms 
  • It protects partners interests and investments.
  • The agreement provides a structural approach to handling disagreements and preventing them from escalating in lengthy and costly legal battles.
  • It provides for future changes in the course of the partnership.
  • A well-drafted partnership agreement helps ensure compliance with relevant laws and regulations including tax requirements.

Essential clauses of a partnership agreement

  • Partnership’s name and purpose.
  • Partnership contribution (Capital, assets, or services each partner contributes).
  • Profit and loss distribution.
  • Management and decision making (defines roles, responsibilities, and voting procedures).
  • Dispute resolution.
  • Partnership duration and termination (conditions for ending the business).
  • Withdrawal or death of a partner.
  • Confidentiality.
  • Non-compete.
  • Accounting and Banking (procedures for financial management). 

A partnership agreement is one of the most basic and easy to write contracts, but very important nevertheless. Don’t write one without a a legal expert.