A partnership agreement is a legal contract between partners in a partnership. It specifies a particular set of regulations which are to be put in writing. Partnership agreements guide the operations of a partnership. Those involved in a partnership should take great caution when creating a partnership agreement because it cannot be altered after it has been put into writing.
All partnership agreements in Indonesia ought to include certain information. Among these are the name of the partnership, the personal details of the partners of the partnership, and the duties to be performed by each partner. The primary duties and activities of the business also ought to be mentioned. The managerial roles which are relevant to the running of the partnership must be mentioned. The identities of those who will be responsible for the primary managerial responsibilities within the partnership must also be stated. Information about meetings must also be included; this information should state details on how each meeting is to be conducted as well as the identities of attendees and voters. Each partner’s capital contribution, ownership percentage, profits to be claimed, and method towards the resolution of any disputes are all to be stated in an Indonesian company’s partnership agreement. Should the partners plan to bring the partnership to an end, the agreement must state how, when, and why it is to be terminated.
Why Partnerships Need Partnership Agreements
A certain amount of trust must be involved during the starting of a partnership. Most new business owners who are partners trust each other and have confidence that the business will run well until it is upgraded, dissolved by choice, or sold for a considerable amount of money. However, it is a fact that certain situations might lead to disagreements which cannot easily be solved among the owners or partners. Such a situation might be exacerbated through differences of expectations or conflicts of interest. However, partnership agreements do much to prevent such scenarios from taking place.
Another reason why partnerships in Indonesia need partnership agreements is to avoid breaking the laws of the country. Company laws in Indonesia outright state that before a partnership can be started in the country, the partners must create an agreement to define its operational processes and aid it with the solving of problems. Partnership agreements also allow the government to ensure that the company is partaking in activities which are legal in Indonesia and in accordance with its business objectives. Thus, the requirements as stated by the Indonesian government necessitate that Indonesian partnerships have partnership agreements.
Partnership agreements also specify the details of the ownership of the partnership. They also mention the number of shares possessed by each person involved in the partnership. Partnership agreements also restrict the sales of shares as well as how transfers of interest are conducted. Failure to specify this vital information within the agreement may cause the company owners to inadvertently transfer shares to competitors. Doing so might place the business at risk of being bought for a low price or even dissolved. The agreement also specifies what will happen to the partnership in case of incidences of death, severe physical or mental illness, or any other disability suffered by the owner of the company. Thus, a partnership agreement enables continuity of the company. A well-drafted agreement should also seek to protect a certain portion of the shares of the partnership.
A partnership agreement will allow partners to agree in advance on important decisions such as dispute resolution. Disputes will take place in any partnership. They usually occur due to conflicting interests or beliefs with regard to the company. Therefore, it is crucial that the partnership specify what is to be done during disputes.
In certain situations, it may be more advantageous for a partnership to carry on operating without one or more of its current partners. Although all partners form a company with the best of intentions, it sometimes is the case that, whether unintentionally or deliberately, some might be harming the success and prosperity of the company. A partnership agreement ought to include how such partners are to be treated and under what circumstances they should be removed from the partnership.
Another reason why partnerships need partnership agreements is the fact that such agreements include provisions that address what is to happen in the event of an owner’s death, disability, or bankruptcy. The occurrence of any of these events will cause the partnership to suffer. Therefore, if a company lacks a written agreement addressing such situations, the owners could be forced to dissolve the company against their will.
A written partnership agreement will also include provisions that protect all the partners involved in the partnership. Minority and majority partners alike often have differing interests; however, in spite of such differences, the agreement ought to make no distinctions in this area and protect these interests equally. Such provisions also ensure that all partners receive the same buyout offers. They also protect the minority owners from being forced into accepting less lucrative offers. Such is also true in the case of the partnership’s majority owners. Therefore, ownership protection will result in favorable circumstances for the company’s owners.