A partnership agreement is a formal contract which legally binds the partners. This agreement serves to delegate their respective rights, duties, and the division of profits and losses. Additionally, it establishes fundamental guidelines governing the partnership, encompassing aspects like capital contributions, withdrawals, and financial reporting. While the Partnership Act 1961 does not make partnership agreement mandatory, having a written partnership agreement is strongly recommended to formally lay down operational guidelines, promotes business efficiency, and mitigates potential disputes and misunderstandings among partners.
Partnership agreements commonly include among others – the partners’ assumptions, assets and capital accounts ownerships, profit and loss sharing, practice management, dispute matters, expulsion, and death, disability or resignation.
In preparing a partnership agreement, the Malaysian Bar has created a checklist of details to be included.