The most common conflicts in partnership are due to decision-making problems and disputes between partners. The partnership agreement sets conditions for the decision-making process, which may include a voting system or other method of monitoring and balancing between partners. In addition to decision-making procedures, a partnership agreement should include instructions for resolving disputes between partners. This objective is generally achieved by a conciliation clause in the agreement, which aims to provide a means of resolving disputes between partners without judicial intervention. “I suggest that formal partnership agreements be entered into when solo practice companies develop into a partnership or ensembles,” said Rich Whitworth, Director of Corporate Consulting at Cetera Financial Group. “The main reason is that it establishes the “rules of engagement” between the company and its owners … and presents a roadmap for addressing issues at the enterprise level. Although there is no need for a written partnership agreement, it is often a very good idea to have such a document to avoid internal quarrels (on profits, management of the company, etc.). A written partnership agreement should contain provisions for the protection of minority partners. Such a clause, the “tag along” provision, protects minority owners in the event of a third-party purchase. If a majority shareholder sells its shares to third parties, the minority shareholder has the right to be part of the transaction and to sell its shares on similar terms. The advantage for the minority owner is that he can avoid being in business with an unwanted new co-owner. This provision also ensures that all partners receive similar takeover offers and protects minority owners from the adoption of much less attractive offers.
A partnership is a business founded with two or more people as an owner. Each individual contributes to the activity and represents a share of the profits and losses of this activity. Some partners are actively involved, while others are passive. A partnership agreement will establish the internal management rules for the partnership. It cannot establish rules on the relationship between the partnership and third parties. The partnership agreement defines all the conditions agreed by the partners.