Partnerships are legal relationships which are based on contracts where two or more people (or companies) agree to carry on business together with the object of making and sharing profits. Partnerships generally involve an ongoing business relationship. Joint venture partnerships are different from joint venture agreements. In South Africa, in order to establish a partnership the parties must fulfil all the following requirements and state them in a valid agreement:
- Each brings something into the partnership (For example, money, labour or skill).
- The business must be carried on for the joint benefit of all partners.
- The object of the enterprise must be to make a profit.
- The intention to be partners must be clear from both parties.
Partnerships are about sharing losses and profits equally.
Joint venture partnership agreement
It is possible to have a joint venture (an agreement to work together) which is also a partnership. A joint venture partnership is able to accommodate both short term and long term relationships. For example, if you are certain you wish to work together for a short term business prospect but also want the opportunity to continue to work in partnership in future provided the short term relationship is successful.
So far, so good but as everyone knows good partnerships are based on a give and take and this can get very risky for a business. Partnerships, including the joint venture partnership variety, do not have a separate legal personality. This means the existence of the partnership is based on the partners themselves. Therefore, it is the partners themselves that are liable for all losses incurred by the partnership. One partner can be held liable for the loss incurred by the other partner. The partners carry a heavy risk and financial burden. Because of the position that the partners are in they are also subject to onerous fiduciary duties.
- A partner must accept the risk liability and other obligations that are associated with the partnership.
- A partner must not compete with the partnership through another business interest.
- A partner must be careful to avoid situations of conflict of interest. If a conflict of interest arises, a partner must disclose it to the other partners.
A partnership is like getting married in community of property.
Are partnerships a good idea?
Generally no. If you think that you would like to enter into a joint venture, we wouldn’t recommend a partnership but instead, you could think about a joint venture agreement or joint venture entity which are flexible, lower risk options that offer you better protection. Another option is creating a reseller relationship. You can also read more about partnerships.