Essentials of a Partnership Contract in Zimbabwe

In this week’s blog post we discuss partnership agreements, essential clauses and guidelines for registration.

What is a partnership agreement?

A partnership contract is a document which outlines the way a business partnership will be run. In terms of the Companies and Other Business entities Act, in Zimbabwe a partnership may have between 2 and 20 partners. The contract details the relationship between its partners, defines assets, profit shares and liabilities for each partner. Principally there are four essentials that must be present in order for an agreement to create a partnership. These are –

1. that each of the partners brings something into the partnership or binds himself to bring something into it, whether it be money, or labour or skill;
2. that the business should be carried on for the joint benefit of both parties;
3. that the object should be to make profit or for some other gain; and
4. that the contract between the parties should be a legitimate contract.

In law, where the above essential features are present in the contract between two or more persons, then that contract constitutes a partnership agreement regardless of what the parties thereto may call it e.g. syndicates – unless there are clear indications, in the terms of the agreement, that it is not a partnership. It is therefore quite important that before parties enter into a contract they consider the nature of same and clearly articulate it in the written agreement. There is no requirement at law that the contract be written, but it is always advisable for the agreement between the parties to be in writing.

Implication of partnership:

Implications of partnership include the fact that the partners share in all profit and loss. This means that during the existence of the partnership, partners are joint co-creditors and joint co-debtors of the rights and obligations of the partnership. They can therefore be sued or held liable jointly and severally. Additionally, a partner cannot alienate his interest in the property jointly owned without consent of the other partner. Further partners are agents of each other by virtue of the partnership between them.

Essential clauses of a partnership contract:

There a myriad of clauses which should be included in a partnership contract depending on the purpose and nature of the partnership, however, some essential ones include the following:

1. Management of partnership clause

Every partner is entitled to participate in the management of the partnership business and may not be excluded therefrom. The contract must therefore include a comprehensive clause on how the parties will manage the partnership and each of their respective roles as well as prohibitions. Additionally, clauses to the effect that, a partner may not transact any partnership business without the consent of all his co-partners, must be included in the contract. The contract should also state that a partner may not use partnership property contrary to the terms of the agreement, and that a partner cannot use the property of the partnership so as to exclude the other partner entirely from the control of the partnership property.

• The contract must state the duties of each partner

There are number of key duties which exist between partners. Standard duties included in a contract of partnership are the following:

1. Duty of Good Faith – Partners stand in a fiduciary relation to one another and are obliged to observe the highest degree of good faith. Not only must a partner avoid a conflict of interest situation but also he must refrain from securing for himself a secret benefit or profit at the expense of the partnership.
2. Duty to account and to share profits – A partner is obliged to account for and deliver to the partnership whatever he has obtained as a partner on behalf of the partnership or within the scope of the partnership business or in continuance of partnership transactions. Each partner must allow his co-partner the share of the profits.

• The contract must include a dissolution clause

It is essential for the contract to detail the instances in which dissolution will occur to avoid disputes between the parties. At law partnership may be dissolved by agreement or by operation of law or by renunciation. The least controversial dissolution would be one in terms of the contract, thus the contract should encompass instances where parties may dissolve the partnership. The contract may specify that the contract will be dissolved on a specific date, or upon the occurrence of specified events, or upon death or insolvency of one of the partners.

Registration of Partnerships

Generally, a partnership is not a legal entity having an existence separate from the individual person/s constituting it. However, in terms of the Companies and Other Business Entities Act [Chapter 24:31] a partnership may now be registered with the registrar of deeds, thereby creating a separate legal entity. To carry out this process, partners to the partnership should engage a competent legal practitioner to facilitate the registration.

Conclusion

The contents of the partnership contract will largely depend on the purpose for which the partnership is constituted, the nature of relationship that exists between the proposed partners and the extent to which each partner may want to bear liability for the business. We encourage individuals or corporate entities seeking to embark on any kind of partnership in Zimbabwe to seek proper legal advice on the preferred kind of partnership for their business needs.

The information and opinions expressed above are for general information only. Specialist advice should be sought about your specific circumstances.  They are not intended to constitute legal or other professional advice.