CALGARY PARTNERSHIP AGREEMENT LAWYER

Contact Neufeld Legal PC at 403-400-4092 or Chris@NeufeldLegal.com

Whenever you are looking to partner with other individuals in a business venture, it is absolutely imperative that you have a signed written agreement from the outset, whether this is a partnership agreement or a joint venture agreement (for limited engagements).

Without a legally binding written agreement, the success of the business venture and the protection of your contribution towards that business venture can be subject to serious jeopardy, with the negative consequences of not having a fully executed written agreement being harrowing and financially devastating.

Depending upon the particulars of the business venture, when it is undertaken in conjunction with other individuals, we cannot overstate the absolute importance of having a written partnership agreement (or joint venture agreement).

Among the most important reasons for having a formal written agreement between the participants, particular consideration should be given to:

1. A Written Partnership Agreement Clarifies Expectations and Responsibilities

  • Roles and Duties: The written agreement should clearly define who is responsible for what, preventing overlap, gaps, or misunderstandings about daily operations, strategic decisions, and workload distribution.

  • Decision-Making: The partnership agreement should outline how decisions will be made (e.g., unanimous consent, majority vote, specific partner authority for certain matters), ensuring a clear process for moving forward.

  • Contributions: A formal agreement should specify initial capital contributions (money, assets, intellectual property, etc.) and any expectations for future contributions.

2. A Written Partnership Agreement mitigates against Misunderstanding and Disputes, while providing a means to Resolving Disputes

  • Reduced Misunderstandings: By putting everything in writing at the outset, a formal agreement significantly reduces the likelihood of disagreements arising from unstated assumptions or differing interpretations.

  • Dispute Resolution Mechanism: Written agreements should establish a clear process for resolving conflicts, such as mediation or arbitration, before they escalate into costly and damaging legal battles in court. This helps maintain the business relationship and avoids protracted and expensive court litigation.

  • Fairness: A partnership agreement helps to ensure that all partners understand the rules and expectations being pursued in the business venture from the outset, promoting a sense of fairness and transparency.

3. A Formal Written Agreement serves to define Key Financial Aspects

  • Profit and Loss Distribution: Legal agreements are capable of appropriately outlining how profits and losses will be shared among partners, which may not always be equal, especially if contributions vary.

  • Salaries and Draws: A formal agreement can specify if and how partners will receive regular payments or draws from the business.

  • Capital Reserves: The written agreement can also address how capital reserves will be managed and used.

4. A Written Agreement addresses Major Events and Transitions

  • Entry of New Partners: A written partnership agreement can set out the process and conditions for admitting new partners, including their contributions, ownership stake, and decision-making power.

  • Exit Strategy (Withdrawal, Retirement, Death): This is a critical aspect, with an effective legal agreement detailing what happens if a partner wants to leave, retires, becomes incapacitated, or dies. This often includes:

    • Buy-Sell Provisions: How a departing partner's interest will be valued and purchased by the remaining partners or the partnership.

    • Succession Planning: What happens to the business and its assets in such scenarios, preventing forced liquidation or legal disputes among heirs.

  • Dissolution of the Partnership: The written partnership agreement should also outline the procedures for winding down the business if the partnership decides to dissolve, including asset distribution and debt settlement.

5. A Written Agreement provides Legal Protection

  • Overrides Unsatisfactory Provincial Partnership Law: Without a partnership agreement, your partnership will be governed by provincial partnership legislation and laws, which tend to be grossly inadequate and rarely, if ever, will align with your specific intentions or circumstances. We cannot overstate the importance of not being captive to provincial partnership legislation and laws in the absence of a written partnership agreement.

  • Limited Liability (for certain partnership types): For structures like Limited Liability Partnerships (LLPs), the agreement is essential in defining the scope of limited liability for limited partners (as opposed to general partners).

  • Enforceability: A well-drafted and signed agreement is a legally binding document that can be enforced in court if necessary.

Business ventures that are undertaken in conjunction with other individuals can only benefit from having a binding legal agreement between each of the participants, be it a partnership agreement or a joint venture agreement.

Given the investment that you and your partners are making into the particular business venture, having a solid legal agreement as between each of the partners is a small price to pay, given the significant costs that can arise in its absence.

Providing strategic legal advice and direction to business partnerships and joint ventures engaged in commercial activities in Alberta, from partnership / joint venture formation to internal governance to contracts and business transactions to dispute resolution. Contact our law firm at Chris@NeufeldLegal.com or 403-400-4092 to schedule a confidential initial consultation for your business partnership or joint venture.

Importance of a Partnership Agreement