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Partnership Agreement

Financial Decisions


Financial Decisions

Unanimous vote
Majority vote


Frequently Asked Questions
What are financial decisions?Financial decisions include distribution of profits, allocation of losses, and other financial matters the partners have to decide on.


Your Partnership Agreement

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PARTNERSHIP AGREEMENT

THIS PARTNERSHIP AGREEMENT (the "Agreement") made and entered into this ________ day of ________________, ________ (the "Execution Date"),

BETWEEN:

____________________________ of ___________________________________________________________________, and
____________________________ of ___________________________________________________________________
(individually the "Partner" and collectively the "Partners").

BACKGROUND:

  1. The Partners wish to associate themselves as partners in business.
  2. This Agreement sets out the terms and conditions that govern the Partners within the Partnership.

IN CONSIDERATION OF and as a condition of the Partners entering into this Agreement and other valuable consideration, the receipt and sufficiency of which consideration is acknowledged, the parties to this Agreement agree as follows:

  1. Formation
  2. By this Agreement the Partners enter into a general partnership (the "Partnership") in accordance with the laws of the Province of Alberta. The rights and obligations of the Partners will be as stated in the applicable legislation of the Province of Alberta (the 'Act') except as otherwise provided in this Agreement.
  3. Name
  4. The firm name of the Partnership will be: _____________________
  5. Purpose
  6. The purpose of the Partnership will be: ___________________________________
  7. Term
  8. The Partnership will begin on October 14th, 2024 and will continue until terminated as provided in this Agreement.
  9. Place of Business
  10. The principal office of the business of the Partnership will be located at ____________________________________________________________ or such other place as the Partners may from time to time designate.
  11. Initial Capital Contributions
  12. Each of the Partners has contributed or will contribute to the capital of the Partnership, in cash or property or in non-monetary contributions in agreed upon value, as follows (the “Initial Capital Contribution"):

    Partner

    Contribution Description

    Agreed Value

    ____________________________

       

    ____________________________

       


  13. All Partners must contribute their respective Initial Capital Contributions fully by October 14, 2024.
  14. Additional Capital
  15. The capital contribution of a Partner comprises that Partner’s Initial Capital Contribution and any additional capital contribution (the “Additional Capital Contribution”) made by that Partner to the Partnership at a later date (together the “Capital Contribution”). No Partner will be required to make an Additional Capital Contribution. When the Partnership requires additional capital, each Partner will have the opportunity to make an Additional Capital Contribution in proportion to that Partner’s share of the total Capital Contributions to the Partnership. If an individual Partner is unwilling or unable to meet the additional contribution requirement within a reasonable period, as required by Partnership business obligations, then by a unanimous vote of the Partners the remaining Partners may contribute in proportion to their existing Capital Contributions to resolve the amount in default.
  16. Any advance of money to the Partnership by any Partner in excess of the amounts provided for in this Agreement or subsequently agreed to as Additional Capital Contribution will be deemed a debt owed by the Partnership and not an increase in Capital Contribution of the Partner. This liability will be repaid with interest at rates and times to be determined by a majority of the Partners within the limits of what is required or permitted in the Act. This liability will not entitle the lending Partner to any increased share of the Partnership's profits nor to a greater voting power. Such debts may have preference or priority over any other payments to Partners as may be determined by a majority of the Partners.
  17. Withdrawal of Capital
  18. No Partner will withdraw any portion of their Capital Contribution without the express written consent of the remaining Partners.
  19. Capital Accounts
  20. An individual capital account (the "Capital Accounts") will be maintained for each Partner and their Initial Capital Contribution will be credited to this account. Any Additional Capital Contributions made by any Partner will be credited to that Partner's individual Capital Account.
  21. Interest on Capital
  22. No borrowing charge or loan interest will be due or payable to any Partner on their agreed Capital Contribution inclusive of any agreed Additional Capital Contributions.
  23. Financial Decisions
  24. Decisions regarding the distribution of profits, allocation of losses, and the requirement for Additional Capital Contributions as well as all other financial matters will be decided by a unanimous vote of the Partners.
  25. Profit and Loss
  26. Subject to any other provisions of this Agreement, the net profits and losses of the Partnership, for both accounting and tax purposes, will accrue to and be borne by the Partners in equal proportions, unless an Additional Capital Contribution has been made which changed the Initial Capital Contribution proportions of the Partners in which case each Partner will share in the net profit and losses of the Partnership in proportion to the new Capital Contributions (the "Profit and Loss Distribution").
  27. Books of Account
  28. Accurate and complete books of account of the transactions of the Partnership will be kept in accordance with generally accepted accounting principles and at all reasonable times will be available and open to inspection and examination by any Partner. The books and records of the Partnership will reflect all the Partnership’s transactions and will be appropriate and adequate for the business conducted by the Partnership.
  29. Annual Report
  30. As soon as practicable after the close of each fiscal year, the Partnership will furnish to each Partner an annual report showing a full and complete account of the condition of the Partnership. This report will consist of at least the following documents:
    1. a statement of all information as will be necessary for the preparation of each Partner's income or other tax returns;
    2. a copy of the Partnership's federal income tax returns for that fiscal year; and
    3. any additional information that the Partners may require.
  31. Banking and Partnership Funds
  32. The funds of the Partnership will be placed in such investments and banking accounts as will be designated by the Partners. Partnership funds will be held in the name of the Partnership and will not be commingled with those of any other person or entity.
  33. Fiscal Year
  34. The fiscal year will end on December 31 of each year.
  35. Audit
  36. Any of the Partners will have the right to request an audit of the Partnership books. The cost of the audit will be borne by the Partnership. The audit will be performed by an accounting firm acceptable to all the Partners. Not more than one (1) audit will be required by any or all of the Partners for any fiscal year.
  37. Management
  38. Except as all of the Partners may otherwise agree in writing, all actions and decisions respecting the management, operation and control of the Partnership and its business will be decided by a unanimous vote of the Partners.
  39. Contract Binding Authority
  40. Each Partner will have authority to bind the Partnership in contract.
  41. Meetings
  42. Regular meetings of the Partners will be held only as required.
  43. Any Partner can call a special meeting to resolve issues that require a vote, as indicated by this Agreement, by providing all Partners with reasonable notice. In the case of a special vote, the meeting will be restricted to the specific purpose for which the meeting was held.
  44. All meetings will be held at a time and in a location that is reasonable, convenient and practical considering the situation of all Partners.
  45. Admitting a New Partner
  46. A new Partner may only be admitted to the Partnership with a unanimous vote of the existing Partners.
  47. Any new Partner agrees to be bound by all the covenants, terms, and conditions of this Agreement, inclusive of all current and future amendments. Further, a new Partner will execute such documents as are needed to effect the admission of the new Partner. Any new Partner will receive such business interest in the Partnership as determined by a unanimous decision of the other Partners.
  48. Voluntary Withdrawal of a Partner
  49. Any Partner will have the right to voluntarily withdraw from the Partnership at any time. Written notice of intention to withdraw must be served upon the remaining Partners at least three (3) months prior to the withdrawal date.
  50. The voluntary withdrawal of a Partner will result in the dissolution of the Partnership.
  51. A Dissociated Partner will only exercise the right to withdraw in good faith and will act to minimize any present or future harm done to the remaining Partners as a result of the withdrawal.
  52. Involuntary Withdrawal of a Partner
  53. Events resulting in the involuntary withdrawal of a Partner from the Partnership will include but not be limited to: death of a Partner; Partner mental incapacity; Partner disability preventing reasonable participation in the Partnership; Partner incompetence; breach of fiduciary duties by a Partner; criminal conviction of a Partner; Expulsion of a Partner; Operation of Law against a Partner; or any act or omission of a Partner that can reasonably be expected to bring the business or societal reputation of the Partnership into disrepute.
  54. The involuntary withdrawal of a Partner will result in the dissolution of the Partnership.
  55. A trustee in bankruptcy or similar third party who may acquire that Dissociated Partner's interest in the Partnership will only acquire that Partner's economic rights and interests and will not acquire any other rights of that Partner or be admitted as a Partner of the Partnership or have the right to exercise any management or voting interests.
  56. Dissociation of a Partner
  57. Where the dissociation of a Partner for any reason results in the dissolution of the Partnership then the Partnership will proceed in a reasonable and timely manner to dissolve the Partnership, with all debts being paid first, prior to any distribution of the remaining funds. Valuation and distribution will be determined as described in the Valuation of Interest section of this Agreement.
  58. The remaining Partners retain the right to seek damages from a Dissociated Partner where the dissociation resulted from a malicious or criminal act by the Dissociated Partner or where the Dissociated Partner had breached their fiduciary duty to the Partnership or was in breach of this Agreement or had acted in a way that could reasonably be foreseen to bring harm or damage to the Partnership or to the reputation of the Partnership.
  59. Dissolution
  60. Except as otherwise provided in this Agreement, the Partnership may be dissolved only with the unanimous consent of all Partners.
  61. Distribution of Property on Dissolution of Partnership
  62. In the event of the dissolution of the Partnership, each Partner will share equally in any remaining assets or liabilities of the Partnership, unless an Additional Capital Contribution has been made which changed the Initial Capital Contribution proportions of the Partners in which case the Partners will share the assets or liabilities in proportion to their respective Capital Contributions (the “Dissolution Distribution”).
  63. Upon Dissolution of the Partnership and liquidation of Partnership Property, and after payment of all selling costs and expenses, the liquidator will distribute the Partnership assets to the following groups according to the following order of priority:
    1. in satisfaction of liabilities to creditors except Partnership obligations to current Partners;
    2. in satisfaction of Partnership debt obligations to current Partners; and then
    3. to the Partners according to the Dissolution Distribution described above.
  64. The claims of each priority group will be satisfied in full before satisfying any claims of a lower priority group. Any excess of Partnership assets after liabilities or any insufficiency in Partnership assets in resolving liabilities under this section will be shared by the Partners according to the Dissolution Distribution described above.
  65. Valuation of Interest
  66. In the absence of a written agreement setting a value, the value of the Partnership will be based on the fair market value appraisal of all Partnership assets (less liabilities) determined in accordance with generally accepted accounting principles. This appraisal will be conducted by an independent accounting firm agreed to by all Partners. An appraiser will be appointed within a reasonable period of the date of withdrawal or dissolution. The results of the appraisal will be binding on all Partners. A withdrawing Partner's interest will be based on that Partner's proportion of the Dissolution Distribution described above, less any outstanding liabilities the withdrawing Partner may have to the Partnership. The intent of this section is to ensure the survival of the Partnership despite the withdrawal of any individual Partner.
  67. No allowance will be made for goodwill, trade name, patents or other intangible assets, except where those assets have been reflected on the Partnership books immediately prior to valuation.
  68. Goodwill
  69. The goodwill of the Partnership business will be assessed at an amount to be determined by appraisal using generally accepted accounting principles.
  70. Title to Partnership Property
  71. Title to all Partnership Property will remain in the name of the Partnership. No Partner or group of Partners will have any ownership interest in such Partnership Property in whole or in part.
  72. Voting
  73. Any vote required by the Partnership will be assessed where each Partner receives one vote carrying equal weight, unless an Additional Capital Contribution has been made which changed the Initial Capital Contribution proportions of the Partners in which case each Partner will have voting strength in proportion to Capital Contributions.
  74. Force Majeure
  75. A Partner will be free of liability to the Partnership where the Partner is prevented from executing their obligations under this Agreement in whole or in part due to force majeure, such as earthquake, typhoon, flood, fire, and war or any other unforeseen and uncontrollable event where the Partner has communicated the circumstance of said event to any and all other Partners and taken any and all appropriate action to mitigate said event.
  76. Duty of Loyalty
  77. No Partner will engage in any business, venture or transaction, whether directly or indirectly, that might be competitive with the business of the Partnership or that would be in direct conflict of interest to the Partnership without the unanimous written consent of the remaining Partners. Any and all businesses, ventures or transactions with any appearance of conflict of interest must be fully disclosed to all other Partners. Failure to comply with any of the terms of this clause will be deemed an Involuntary Withdrawal of the offending Partner and may be treated accordingly by the remaining Partners.
  78. Duty of Accountability for Private Profits
  79. Each Partner must account to the Partnership for any benefit derived by that Partner without the consent of the other Partners from any transaction concerning the Partnership or any use by that Partner of the Partnership property, name or business connection. This duty continues to apply to any transactions undertaken after the Partnership has been dissolved but before the affairs of the Partnership have been completely wound up by the surviving Partner or Partners or their agent or agents.
  80. Duty to Devote Time
  81. Each Partner will devote such time and attention to the business of the Partnership as the majority of the Partners will from time to time reasonably determine for the conduct of the Partnership business.
  82. Forbidden Acts
  83. No Partner may do any act in contravention of this Agreement.
  84. No Partner may permit, intentionally or unintentionally, the assignment of express, implied or apparent authority to a third party that is not a Partner in the Partnership.
  85. No Partner may do any act that would make it impossible to carry on the ordinary business of the Partnership.
  86. No Partner may individually consent to a judgment against the Partnership.
  87. No Partner will have the right or authority to bind or obligate the Partnership to any extent with regard to any matter outside the intended purpose of the Partnership.
  88. Any violation of the above Forbidden Acts will be deemed an Involuntary Withdrawal of the offending Partner and may be treated accordingly by the remaining Partners.
  89. Indemnification
  90. All Partners will be indemnified and held harmless by the Partnership from and against any and all claims of any nature, whatsoever, arising out of a Partner's participation in Partnership affairs. A Partner will not be entitled to indemnification under this section for liability arising out of gross negligence or wilful misconduct of the Partner or the breach by the Partner of any provisions of this Agreement.
  91. Liability
  92. A Partner will not be liable to the Partnership, or to any other Partner, for any mistake or error in judgment or for any act or omission done in good faith and believed to be within the scope of authority conferred or implied by this Agreement or the Partnership.
  93. Liability Insurance
  94. The Partnership may acquire insurance on behalf of any Partner, employee, agent or other person engaged in the business interest of the Partnership against any liability asserted against them or incurred by them while acting in good faith on behalf of the Partnership.
  95. Life Insurance
  96. The Partnership will have the right to acquire life insurance on the lives of any or all of the Partners, whenever it is deemed necessary by the Partnership. Each Partner will cooperate fully with the Partnership in obtaining any such policies of life insurance.
  97. Amendments
  98. This Agreement may not be amended in whole or in part without the unanimous written consent of all Partners.
  99. Governing Law and Jurisdiction
  100. This Agreement will be construed in accordance with and exclusively governed by the laws of the Province of Alberta
  101. The Partners submit to the jurisdiction of the courts of the Province of Alberta for the enforcement of this Agreement or any arbitration award or decision arising from this Agreement.
  102. Definitions
  103. For the purpose of this Agreement, the following terms are defined as follows:
    1. "Additional Capital Contributions" means Capital Contributions, other than Initial Capital Contributions, made by Partners to the Partnership.
    2. "Capital Contribution" means the total amount of cash or Property contributed to the Partnership by any one Partner.
    3. "Dissociated Partner" means any Partner who is removed from the Partnership through a voluntary or involuntary withdrawal as provided in this Agreement.
    4. "Expulsion of a Partner" can occur on application by the Partnership or another Partner, where it has been determined that the Partner:
      1. has engaged in wrongful conduct that adversely and materially affected the Partnership's business;
      2. has wilfully or persistently committed a material breach of this Agreement or of a duty owed to the Partnership or to the other Partners; or
      3. has engaged in conduct relating to the Partnership's business that makes it not reasonably practicable to carry on the business with the Partner.
    5. "Initial Capital Contribution" means Capital Contributions made by any Partner to acquire an interest in the Partnership.
    6. "Operation of Law" means rights or duties that are cast upon a party by the law, without any act or agreement on the part of the individual including, but not limited to, an assignment for the benefit of creditors, a divorce, or a bankruptcy.
  104. Miscellaneous
  105. Time is of the essence in this Agreement.
  106. This Agreement may be executed in counterpart.
  107. Headings are inserted for the convenience of the parties only and are not to be considered when interpreting this Agreement. Words in the singular mean and include the plural and vice versa. Words in the masculine gender include the feminine gender and vice versa. Words in the neuter gender include the masculine gender and the feminine gender and vice versa.
  108. If any term, covenant, condition or provision of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, it is the parties' intent that such provision be reduced in scope by the court only to the extent deemed necessary by that court to render the provision reasonable and enforceable and the remainder of the provisions of this Agreement will in no way be affected, impaired or invalidated as a result.
  109. This Agreement contains the entire agreement between the parties. All negotiations and understandings have been included in this Agreement. Statements or representations which may have been made by any party to this Agreement in the negotiation stages of this Agreement may in some way be inconsistent with this final written Agreement. All such statements are declared to be of no value in this Agreement. Only the written terms of this Agreement will bind the parties.
  110. This Agreement and the terms and conditions contained in this Agreement apply to and are binding upon the Partner's successors, assigns, executors, administrators, beneficiaries, and representatives.
  111. Any notices or delivery required here will be deemed completed when hand-delivered, delivered by agent, or seven (7) days after being placed in the post, postage prepaid, to the parties at the addresses contained in this Agreement or as the parties may later designate in writing.
  112. All of the rights, remedies and benefits provided by this Agreement will be cumulative and will not be exclusive of any other such rights, remedies and benefits allowed by law.

IN WITNESS WHEREOF the Partners have duly affixed their signatures under hand and seal on this ________ day of ________________, ________.

 

_______________________________
______________________(Partner)

 

_______________________________
______________________(Partner)


What is a Partnership Agreement?

A Partnership Agreement is a contract between two or more business partners in a for-profit general partnership. It outlines their rights, responsibilities, and capital contributions and establishes rules for their business, such as the profit and loss distribution.

A Partnership Agreement is also known as a:

  • General Partnership Agreement
  • Business Partnership Agreement

Who should use a Partnership Agreement?

All owners of general partnerships should use a Partnership Agreement.

Two or more people or companies can start a business as a general partnership. The partners can involve any mix of individuals and business entities. For instance, two businesses can come together to form a partnership.

It’s important to note that each partner in a general partnership is equally liable for the debts, obligations, and actions of the partnership and the other partner(s).

Utilizing a Partnership Agreement is crucial for all general partners to outline their terms, rights, and responsibilities. Also, it establishes a clear understanding of the partnership's operations and governance.

Are Partnership Agreements required?

A partnership doesn’t have to be formally created like other types of companies. Therefore, a Partnership Agreement isn’t legally required. If two or more people begin working together for profit, partnership law will apply by default to that situation.

However, not everything in the applicable partnership laws will suit the needs of a modern partnership, so it’s essential that partners define suitable rules in a Partnership Agreement. It minimizes the potential for disputes between partners. Similarly, most businesses create a Business Plan despite it not being required.

Even though it’s not legally required to use an agreement, partners must register their partnership in Canada, either provincially or federally.

Elements of a Partnership Agreement

A comprehensive Partnership Agreement should include the following information:

Basic details

  • The business address
  • When the partnership will start and end
  • A description of the business (i.e., the type of service)
  • The partnership’s name
  • Each partner’s full name and address

Capital contributions

  • Each partner’s capital contributions (e.g., time, effort, cash, equipment, etc.)
  • The total value of each partner’s contributions
  • The deadline for initial capital contribution

Withdrawal and dissolution rules

  • The notice period required before a partner can withdraw
  • Whether the partnership dissolves upon any partner’s withdrawal
  • Whether a unanimous or majority vote is required to dissolve the partnership
  • How assets will be distributed when the partnership dissolves
  • The length of time a partner is prohibited from competing against the partnership after withdrawal

Meeting rules

  • When regular meetings will be held
  • Who can request a special meeting

Decision-making rules

  • Voting requirements to make business decisions
  • The decisions that require the unanimous consent of all partners
  • Whether financial decisions require a unanimous or majority vote
  • Whether the value of partners’ votes is equal, proportionate to capital contributions, or proportionate to profit share
  • Whether individual partners can enter binding contracts on behalf of the partnership, or whether a partnership vote is required

Profit and loss distribution

  • Whether profits and losses will be distributed to partners equally, at a fixed percentage, or proportionally to capital contributions

Other provisions

  • New partner rules, including whether new partners can join and, if so, the voting requirement for admittance
  • Day-to-day management responsibilities
  • Partner compensation
  • The partnership’s fiscal year-end date
  • The partnership’s preferred dispute resolution method

What’s the difference between a partnership and a joint venture?

Joint ventures and partnerships both involve collaboration between two or more parties. However, distinguishing between the two is not precise.

A partnership may be characterised as a long-term business with a range of activities and interests. The relationship between the partners is close and based on trust. There is a pooling of resources such that a partnership has a beneficial interest in any assets contributed to the partnership by individual partners.

A joint venture may be characterised as a short-term, goal-oriented project, between stakeholders who are not necessarily conducting “business in common.” The members of the venture enter into a Joint Venture Agreement may contribute resources, expertise, assets or personnel while maintaining separate assets and business interests outside of the joint venture.

Amending a Partnership Agreement

To amend a Partnership Agreement, partners may use a Partnership Amendment. However, to do so, all partners must agree to and sign the amendment.

Partners may need to amend their Partnership Agreement for various reasons, including:

  • Admitting new partners or removing existing partners
  • Changing the ownership percentages
  • Modifying capital contributions, whether in terms of the amount or type of assets
  • Adjusting the allocation of profits and losses among partners
  • Changing the profit-sharing percentages or introducing a new profit distribution method
  • Redefining decision-making authority within the partnership
  • Extending or shortening the partnership's duration
  • Modifying the conditions under which the partnership can be dissolved

Withdrawing from a Partnership Agreement

When a partner wants to leave a partnership, that partner gives a Notice of Withdrawal from Partnership to the other partners. An example would be when a partner wishes to retire. With the agreement of the remaining partners, a withdrawing partner can assign their partnership interest to another party in order to retire.

On the other hand, if the other partners need to remove a particular partner from the partnership for any reason, they can do so without that partner's consent as long as that is allowed in the Partnership Agreement.

Breaching a Partnership Agreement

Breaching a Partnership Agreement refers to one or more partners violating or failing to comply with the agreement’s terms. Contract breaches can lead to strained relationships, loss of trust among partners, and potential legal consequences.

A breach can occur in various ways, such as:

  • Failing to fulfill financial obligations
  • Disregarding agreed-upon roles and responsibilities
  • Acting against the best interests of the partnership

Resolving a breach typically involves communication, negotiation, and potentially seeking legal remedies to enforce the agreement terms or seek damages for any harm caused. A Partnership Agreement may specify how the business will resolve disputes (e.g., mediation, arbitration, etc.).

If a breach cannot be resolved, the partners may seek to expel the partner in breach. If there are only two partners, there may be no other option but to dissolve the partnership.

Dissolving a Partnership Agreement

Dissolving a Partnership Agreement means formally terminating the partnership and bringing its operations to an end.

It involves ending the legal relationship and responsibilities between the partners, ceasing business activities, and settling any remaining obligations or assets of the partnership.

To dissolve a Partnership Agreement, follow these steps:

  1. Review the Partnership Agreement to understand the specific dissolution procedures.
  2. Consult with all partners to discuss dissolution.
  3. Ensure compliance with any legal requirements.
  4. Notify stakeholders about the partnership's impending dissolution (e.g., suppliers, relevant government agencies, etc.).
  5. Assess the partnership’s assets, liabilities, and obligations.
  6. Determine the process for liquidating partnership assets and settling outstanding debts.
  7. Prepare a Termination Agreement and ensure all parties sign it.
  8. Terminate business operations (e.g., close bank accounts, finishing administrative tasks, etc.).

If a Partnership Agreement states that the business partnership ends on a specific date, it will automatically dissolve on that date.

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