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The term ‘partnership agreement’ is a term frequently interchanged in business lingo. While this is the term most commonly understood by entrepreneurs and business owners, there is an important distinction between a partnership agreement and a shareholder’s agreement in the complex world of business.

A partnership agreement in the strict sense, is entered into between two or more people who agree to contribute toward a business, whether in skill or by a monetary contribution, for the joint benefit of the partners. A partnership agreement will typically set out the responsibilities of each partner, and how the partnership would dissolve if one or more of the partners decides to leave or passes away. As the law does not view partners to a partnership separately from the partnership itself, it is essential to have a properly drafted partnership agreement in place to ensure that a valid partnership is established.

In contrast to partners in a partnership, the shareholders in a private company play an entirely different role. Unlike a partnership, a company is in itself a legal person, separate from those who are responsible for running it (the directors) and those who have an interest in it (the shareholders). In terms of the Companies Act, it is essential that a shareholder’s agreement is drafted carefully, giving due consideration to the provisions of the company Memorandum of Incorporation (MOI), as any provision of the shareholders agreement that is not in line with the provisions of the MOI, will be unenforceable.

Whether it be a new or existing business, it is essential to have the correct agreements in place to ensure that both you and your business are protected. For more information contact Bridget Witts-Hewinson at bridget@curranattorneys.co.za or give us a call on 021 671 9322.