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drafting a Partnership Agreement

Importance of Drafting a Partnership Agreement in UAE

A partnership agreement is a legally binding contract that exists between the partners that are associated with the control and management of the company. This contract governs the duties of the partners and their operations; it includes details about the contribution made by a partner, the profit-sharing ratio between the partners, and the control of the partners, to name a few. A lawyer can assist in drafting a partnership agreement to govern the relationship between the partners of the company.

It may be considered essential to acquire a partnership agreement for a company for the following few reasons:

  • Defines the roles and responsibilities of the partners of the company

A partnership agreement seeks to define the duties of each partner towards the company in various aspects such as decision making. If the roles and obligations of the partners are well defined within an agreement, it reduces confusion and may avoid disputes to arise between them by mentioning the contribution to be made by each partner.

  • Assists in mentioning the liability of the partners in the company 

The agreement may specify the liability of the partners to avoid confusion within the company. This specification depends on whether the partnership is a general partnership or limited partnership. A general partnership may require the partners to invest money into the company, and they may also have unlimited liability wherein they could be personally liable for any unpaid debts of the company. However, a limited partnership limits the liability of the partners, wherein they may not be personally liable for any unpaid debts. A partnership agreement may allow the partners to specifically mention the type and extent of liability of each partner in the business.

  • Provides amicable methods for dispute resolutions 

It is common for disputes to arise between partners for various reasons; it is essential to develop a dispute resolution technique. A partnership agreement specifies dispute resolution methods, that can assist when a dispute may arise internally or externally between the partners. Alternate dispute resolution is one of the common methods to resolve disputes and disagreements between partners, instead of seeking for litigation. It is beneficial to appoint a lawyer that offers legal drafting in Dubai to draft an agreement specifying the method to be used for disagreements between partners.

  • Helps in the financial management of the company 

A partnership agreement also specifies clauses for profit-sharing between the partners and financial management of the company. These clauses help partners to be aware and understand the management of the finances and the profit and salary outcome from the investment made into the business. This agreement may also clearly mention the responsibilities of the partners in decision making that will be considered binding within the organization.

  • May avoid unpleasant dissolution 

Drafting a partnership agreement can be favorable for dissolution reasons. The agreement specifies clauses for dissolution of a business or when the partnership is transferred. This agreement can also mention the distribution of the asset’s leftover after the dissolution of the company. A partnership agreement may contain provisions for dissolution of the company and can be upheld in certain situations such as on the death of a partner, or if a partner goes insolvent, to name a few. The agreement allows the partners to control such events and avoid unwanted dissolution of the company.

  • Allows for an easy exit of a partner from the business 

It is beneficial to draft a partnership agreement to allow a partner to easily exit the business if they no longer want to continue. The agreement specifies circumstances under which a partner can exit the business or a partner can expel the other partner in case he does not fulfill his obligations. The agreement allows a partner to be removed from the business through the mentioned procedure, which may include provisions such as the notice period and the grounds for the exit of the partner from the business.

  • Offers a simple entry of a new partner to the business 

There are situations where a new partner may want to join the existing partnership; the agreement may clarify the procedure for the entry of a new partner to the business without disturbing the current partnership. The current partners may agree to clauses for such situations within the agreement and can implement the same during the entry of a new partner.

  • The partnership agreement can limit the control of the partners in the company 

A partnership agreement may explicitly mention clauses related to the control of the business to the partners. Few contracts may allow equal contribution wherein decisions need to be mutually agreed between partners. However, the agreement can vary, and the clause may allow one partner to acquire control over the business and can make decisions solely without necessarily the approval of all the partners. The agreement may be customized in accordance to the requirement of the parties concerned. A lawyer can assist in drafting legal documents.

Legal Drafting Services in the UAE

A partnership agreement is considered beneficial for partners within an organization. An attorney can assist in drafting such legal documents with customized clauses as per the requirements. HHS Lawyers offers a range of legal drafting services to ensure the protection of the concerned individual’s rights at all times. The firm also provides lawyers and legal consultants that can assist you with your requirements and draft a partnership agreement that seeks to protect the partners’ rights in the company.

M. Al Khairy, LL.B. is a Senior Partner of HHS Lawyers in UAE. Practicing law for almost a decade, he has in-depth knowledge on UAE legislation with particular expertise on legal drafting, contract drafting, labor disputes, family law, and regulatory compliance for business organizations. Al Khairy also provides counsel on legal rights and obligations in the UAE to clients, including individuals and businesses subject to investigation or prosecution under Criminal Law by major regulators. Read more