BBI201: Intro to Business Ms, Tong, CHAPTER 2: EXPLORING PARTNERSHIPS — THE PARTNERSHIP AGREEMENT A "partnership" is a method to carry on business when two or more people carry on a business in common with a view to a profit. The members of a partnership are called "partners". A partnership can be governed by an agreement called a Partnership ‘Agreement, Your partnership agreement should describe the duties and responsibilities of the partners, methods of making decisions, and dissolution of the partnership. Below are some of the common components of a partnership agreement. Find a group of 2—4 people and write up your own partnership agreement in complete sentences, 1) The name of the business/partners This is the agreed name that you will do business by. There are no restrictions unless someone else already uses the name, You should also include the full name of all the partners that form the partnership. 2) Commencement of the partnership This is the exact date when your partnership will begin operating, 3) Nature of the business Briefly describe what the business sells, manufactures, offers, ete.BBI201: Iniro to Business Ms. Tong. 4) Business location If the business will be run from a number of locations, then all the addresses will need to be listed. It may be that the business is run from an office, say in the town centre, or it may be run from the homes of all the partners, 5) Set-up investment You should record the initial amount of capital invested/to be invested into the business by each partner. This may not necessarily be the same for each partner and in which case, may determine the ratio that profits will be split between you, (See section 9) 6) Contribution This will say what each partner will contribute, For example, partner A may contribute the use of their home to run the business and partner B, may contribute the use of a car. 7) Ownership The ownership of the business may be split equally or you may split it relative to the initial investment and contributions of each partner. Bither way, the ownership percentage for each partner should be recorded. It should be also noted that just because a partner has less ownership than others, it is not to say that they are less liable for any debts accumulated by the business: everyone is equally liable although limited partners are only liable up to the amount that they initially invested,BBI201: Intro to Business Ms. Tong (8) Role of the partners This section will outline the level of employment for each partner: full or part time. It will also summarise each partner's role in the business in the form of a job description. 9) Profit and loss sharing This soction will state how profits will be divided between partners and when each partner has the right to draw any of this money from the business. This may be periodically, say 25 percent every three months, or their entire share at the end of the financial year, You may also state the amount of profit that each partner will invest back into the business.BBI201: Intro to Business Ms, Tong 10) Liability sharing fany liabilities are accumulated by the partnership, then itis important that you determine how much each pariner will be responsible for all debts owed and owing to the business 11) Holiday entitlement This wil state the number of days each partner can take off work (annually) and receive full pay. 12) Hines and ineapability Ifa partner develops an illness or has an accident making them incapable of doing their job, specific terms can be made to compensate for this. This includes the maximum period at which the partner will receive full pay and benefits, say 10 weeks. Ifthe period of recovery lies beyond this time, you may adopt an agreement that says the partner will not reecive any more money from the business until they commence work, Further, you ‘can even agree that the partner is to be released from the partnership with a pay-off of an agreed figure. [f any women are in the partnership, you should specify the amount of pay and profit sharing that they will receive during maternity leave. more space backMs. Tong 13) Retirement In the event of a partner retiring, you should agree to a retirement package and how the business will continue to be run, You may decide that the share of the business from the retiring partner will be distributed evenly between the remaining partners. If not, you will have to state how the share will be divided, ‘The retirement package may include a cash pay out of, say, their share of the value of the assets and will be paid out in monthly instalments over a period of, say, 18 months, You should also specify the minimum time for a partner to hand in their notice of retirement 14) Dissolution of the partnership If your partnership ends, then you need to determine how the business will be split between all partners. This will be a split of the money after all remaining stock, assets and equipment have been sold, You may decide that the split will be dependent of the ownership of the business and therefore the partner(s) with more ownership will receive a higher payout. Usually, all proceeds are split evenly especially if the ownership is divided this way.BBI201: Intro to Business. ‘Ms. Tong 15) The death of a partner Should the unfortunate event of the death of a partner occur, itis important that you agree ‘what will happen with the business. If you decide that the business will continue, then ‘you will have to state how the deceased partner's share of the business will be split between the remaining partners. You may give the deceased partner's estate a share of the business assets as a cash settlement, which may further be paid out in instalments. If the business is to be dissolved, you will have to work out how the business will be split between the remaining partner's which may refer back to section 14, 16) Signatures Finally, you should include a section to provide for signatures of all partners along with the date and place (the address where it was signed). A witness should also sign the agreement when they have witnessed ALL pariners signing the document. Summary Today, parinerships are one of the most popular forms of business around and these numbers are still increasing as people venture into starting a new business, Partnerships are seen to have an advantage over sole proprietorships due to the amount of initial investment that can be raised which increases with the number of partners. Further, partnerships are generally larger in size than sole-proprietorships and consequently other sources of finance (loans, overdrafts, etc) will be more favourable to these types of business, Despite the numerous advantages of a partnership, there are disadvantages that sadly result in partners dissolving their business because conflicts can't be settled between them, It is therefore important that you choose your partners with an added respect to attitude and personality to minimize the level of conflict that may occur. (Adapted from www.bichelp24.com)BBI201: Intro to Business Ms, Tong, PARTNERSHIP AGREEMENT — EXAMPLES FOR EACH SECTION 1. "The business will do business by the name of ‘Smith & Jones Accountancy’ and will be run by Mr John Smith and Mrs Clare Jones". 2. "Smith & Jones Accountancy will start operating on Monday February 4" 2009." 3. "Smith & Jones Accountancy will provide a bookkeeping service along with advice and assistance for businesses, and to provide any business that is agreed by all partners". 4, "The business will be located at City Central Offices, 4 Summerset Avenue, City, Postal code, and any other location that is agreed by all partners". 5. "Bach partner will provide an initial capital investment of $1000 that will be credited to the business on Monday January 10, 2009. We further agree that this amount will not be removed from the business without the written consent ofall partners". 6. "John Smith agrees to contribute the use of his car, registration number ABC, to be used by all partners for business purposes only. Clare Jones agrees to contribute the use of her home PC if technical difficulties of the work computers put a stop to the business operations for longer than 24 hours". 7. "The ownership of the business will be split equally with John Smith owning 50 percent and Clare Jones also owning 50 percent. Responsibility and liabilities of the business will be split equally between all partners". 8. "All partners agree to work full time of no more than a 40 hour week. John Smith will be issuing advice and offering his assistance to those businesses that require such and Clare Jones will be producing the accounts of businesses requiring the service” 9. "Profits and loses will be split at 50 percent for John Smith and 50 percent for Clare Jones, For the first five years from the date the business commences trading, all partners will re-invest 10 percent of their profits back into the business at the start of the new financial year" 10."Each partner will be liable for all debts incurred by the partnership at a rate ‘equal to the individual ownership in the business stated in section 7. Likewise, all amounts owed to the business have split responsibility at the same rate",BBI201: Intro to Business Ms. Tong 11."For every six months, all partners are entitled to 14 days holiday with full pay. These days are to be agreed by all partners", 12."In the event of a partner falling ill or being incapable of doing their duty, they will continue to receive benefits for a period of three months. If the period of| recovery falls beyond this time, this partner may be released from the partnership by the remaining partner who will notify them in writing to the last known address. In the event of Clare Jones becoming pregnant, she is entitled to full benetits for the duration of her maternity". 13."A partner may retire when a written notice of at least two months has been. sent to the business address prior to their intended retirement date, The ownership of the business will be passed onto the remaining partner at the date of retirement, The retiring partner will receive a share of the business assets, not including goodwill, and will be calculated by their ownership in the business. This assct figure will be taken from the previous years accounts that have been drawn by the business accountant. This share will be paid in a cash settlement to the retiring partner in instalments of 25 percent at three months, six months, nine months and twelve months". 14,"The partnership will cease trading with the agreement of all partners. On doing so, any contributions will be returned to the respective partners and all assets are to be sold and split between at the rate stated in section 7". 15."In the event of death of a partner, itis agreed that the partnership will continue and that the deceased partner's share of the business will be given to the remaining partner(s) on the date of the death, The deceased partner's estate will be entitled to a share of the business assets including goodwill. This figure will be taken from the business’ balance sheet, which will be completed up to the date of death and will be compiled by the business’ accountant. The share will be paid out from the date of death in four equal instalments after three, six, nine and twelve months",