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Core Module: BLP Paper B
Partnerships Partnership Agreements Drafting a Partnership Agreement
1. Definition of partnership agreement: It defines the powers, rights and duties of the partners within th partnership. (The terms of a contract). Always advise client to have a written agreement - avoid implied provisions.
2. Commencement date - partnership is established as soon as S.1 definition is satisfied. But it is desirable to specify a commencement date from which parties regard their mutual rights and responsibilities as taking effect.
3. Name - state the name so it becomes fixed term of the contract and therefore a party can dispute its amendment as a matter of contract.
4. Financial Input (capital): How much will each partner contribute & address question of future increases in contributions if such increases are anticipated. Future capital contribution: can be by cash / non-cash assets.
5. Shares in income profit / losses:
Implied S.24(1) - AVOID
How to divide profits: The Act Interest payments. Avoid S.24(4) which states that "partner is not entitled, before the ascertainment of profits, to interest on the capital subscribed by him" Remuneration: S.24(6) provides that "no partner shall be entitled to remuneration for acting in the partnership business".
Amendment in P. Agreement Rules on paying interest need to be decided between the partners. Could allow on partner's capital, before surplus profits divided. A partner who has no capital may decide that they need security of a salary in addition to profit shares. Salary can be differing amounts depending on experience / input of the partner. Salary t be paid before surplus profits paid out. Profit sharing - S.24(1) - share equally state a suitable ratio - what is fair in the circumstances.
S.24(1) is thought NOT TO APPLY to post-determination of profits at the date of dissolution of the partnership. It is thought to only apply to income and capital profits and losses sustained during the performance of the partnership business up to the date of dissolution. Therefore specific provisions needed for dissolution.
What can be valued as capital? 'experience / know how' of a partner?
S.42 - payment to outgoing partner where there is no settlement after he leaves. Types of profit share:
1. Merit basis: based on how much each partner has billed / or performance / reviews. Decided on how much value does the partner bring to the business. Appropriate if 1
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