Partners contract: an essential tool to prevent future conflicts

When several partners start a new business, one of the most important questions is to consider how much dedication will them have in the project.  Even though it is a delicate point, it is often forgotten when creating a company. 

 

For example, it could be, that after some time, a partner sets himself apart from the project to form a new enterprise. What do we have to do in these cases?  

 

This an other possible conflicts, can be prevented signing a partner’s contract. In this kind of contracts three agreements are regulated:  the term, the exclusive rights and the non-competition. 

 

Term. If the partners consider that, in order to make their business succeed, it will be necessary for some or all of them to lend their services to the enterprise, they can reach an agreement. This agreement must point out, that the relationship between the partners and the enterprise, can be formalised through: a labour relation, senior management contract or service delivery commercial contract. 

 

The duties, the remuneration and the agreement period must be very clear. Just as the cases that will not be considered unfulfillment (for example, time off sick). 

  

Exclusive rights. Another point that tends to generate conflict, is that one partner carries through another professional activity. And so, he does not work fully on the project. To avoid it, the partners can reach an exclusivity agreement for all or some of them. That will avoid them from performing other activities independently or working for somebody else. 

 

This agreement can be maintained during their connection with the enterprise, or it can be limited in time (for example, it is usual to reach an agreement just for the first years of the business). 

 

If any of the partners is already carrying other activities, it can be foreseen, as an exception, that they will keep carrying them out. In this case, it is convenient to specify the activities with detail. Another option, is to set a minimal dedication to the business (for example, 20 hours per week).  

 

Non-competition. The Manager of a Co. or Ltd. cannot compete with it. But for the non-manager partners, the law does not estate this prohibition. Therefore, it must be considered that it may be possible for the partners, to carry out activities that compete with their society. So, it is necessary to establish the term of it (for example, while their link with the enterprise lasts, and also an additional term). Just as the territory of the prohibition application. 

 

Penalties can be established in case of unfulfillment: economic penalties, or the obligation of selling shares to the other partners, for a price lower than the market one. It is even possible to introduce into the statues some of these agreements as ‘ancillary obligations’; in this way, the partner that does not fulfil them can be excluded from the society.  

 

These agreements involve important obligations. That is why, before reaching them, it is necessary to evaluate if the project really requires this involvement; during which term, and with which scope (for example, it can be necessary to oblige some partner to lend their services but not with exclusivity). 

 

For further information and doubts, contact our Legal Department (info@cinc.es).