Partnership Agreement for Small Business In The UAE

1. Partnership Agreement for Small Business In The UAE Author: Dr. Hassan elhais In this article we will like to highlight the important aspects on why it is critical that small businesses analyze ‘partnership agreements’ and its legal implications. A partnership agreement can be defined as a legally binding agreement between the partners of a company that outlines the roles and responsibilities of each partner and includes the very structure of how the business is to be managed. The partnership agreements can be simple or complex depending on the scope of the business operations. It is essential that partnership agreements be entered into to ensure that the rights of each partner are clearly protected and similarly the obligations of each partner are laid out in writing in clear language. This ensures to bring in a defined structure that is legally enforceable especially in the instance of a dispute. A partnership agreement is therefore a legally binding key document that exists between the partners, which particularly determines the control, and management of the company. Partnership agreements come in many forms and can be simple or complex depending on the scope of the business structure of a company. In the UAE partnership terms are generally in the form of the ‘memorandum and articles of association ‘ of a company. These constitute the integral incorporation documents of a company and are mandatory to be registered with the concerned department of economy or the concerned free zone authorities in case of free zone companies. It is essential to take proper legal advice from corporate lawyers before entering into a partnership agreement. A corporate lawyer can assist you in drafting a partnership agreement and advice you on the pro and cons of the major terms and how you can protect the best interests of the company in the long run. It is best to seek legal help while drafting a partnership agreement and to understand in depth the legalities of the key terms on which the partnership is to be founded. Some of the major factors that make partnership agreements indispensable are the following: Determines the business activities: A partnership agreement determines the objectives of the company that constitutes the foundation on which the company is being instituted. In case of future expansion or addition of different activities to the company’s portfolio the consensus of all the partners might be required and further the agreement has to be amended to reflect the new objectives. Capital Contribution: The partnership agreement determines and includes the capital contribution, which constitutes the paid up capital of the company. This is recorded in the agreement and accordingly the share capital is divided amongst the partners. Profit Distribution: The profit distribution constitutes an essential part of the partnership agreement the profit share of each partner is clearly demarcated in the written agreement This allows for clear and transparent processing of profits and its distribution to the partners upon completion of the audited financials of the company. An interesting facet of profit share as compared to shareholding in a

2. company is that the profit share can be determined on a higher percentage for one partner irrespective of the control on the shareholding. Financial reporting: The partners agree on how the financial reporting and auditing is to be completed in the company and especially how the audited reports are accepted formally every year by the board of directors in the company. Decision making protocols: The partners agree in advance in the partnership agreement as to how the voting mechanisms will work within the company when key issues are to be determined. The voting rights of the shareholders of the company and the minimum voting percentage required for key decision to be accepted are pre-determined and agreed in the partnership agreement enabling smooth operations. Share transfers: The partnership agreement often includes certain key terms that allow ‘preemptive rights’ to existing partners. By including preemptive rights in the partnership agreement an existing partner ensures that he is allowed the choice of buying the shares of the other partner firsthand before the said shares are sold to any other person. An existing partner thus ensures the protection of this interest legally by incorporating the said term. Dispute Resolution: The partnership agreement also includes the dispute resolution forum and by pre- determining the same and ensuring to include certain mediation possibilities before proceeding with litigation ensures that disputes, if any, between the partners can be attempted to be amicable resolved in the first instance. Removal of a partner: The partnership agreement also includes clause that determines the voting rights required to vote for the removal of a partner and also the pre-determined condition based on which a partner can be removed such as when a partner acts in bad faith against the company’s best interest etc. Related Links What You Should Know About Debt Consolidation Loan in UAE? Can Coronavirus Impact Mergers And Acquisitions in UAE? Registering your Wills during Global Pandemic Copyright © of this article is retained by the author and/or other copyright owners. We explicitly grant you permission to download a copy, without any alteration, of this article for personal non-commercial research or study, without prior permission or any charge. This article can be utilized on your website or for marketing, however, we grant you permission to host this article on your website and no other rights. This content should not be altered in any way or sold commercially in any format without prior permission of the copyright holder. During reference of this article, full biographic details entailing the name of the author, his designation, the institute and the publishing date of the article shall be provided. Contact Us The H Hotel Office Tower, 29th Floor, Office 2904, Sheikh Zayed Road, PO Box 40073, Dubai, United Arab Emirates Tel: +971 4 355 8000 | Fax: +971 4 358 9494 Office No. 804, 8th Floor, Tamouh Tower Marina Square, Al Reem Island, PO Box 129980, Abu Dhabi Tel: +971 2 650 1211 | Fax: +971 4 358 9494

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