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What Is the Difference Between a Partnership Agreement and a Shareholder’s Agreement?

What Is the Difference Between a Partnership Agreement and a Shareholder’s Agreement?

Legally, a Partnership Agreement and a Shareholders Agreement are used for different legal structures. A Partnership Agreement refers to an agreement between partners of a partnership. A Shareholders Agreement refers to an agreement between the shareholders of a company.

The key difference between a partnership and a company is that a company is a separate legal entity. The major implication of this is that partners of a partnership are jointly and severally liable for the debts of a partnership whereas for a company, a shareholder’s liability for the company’s debts is usually limited.

A partnership is an association of persons who have agreed to pursue a business objective for their mutual benefit. It allows people and entities to come together to operate a business and share the profit and loss. A Partnership Agreement sets out information such as business objective, management, funding, responsibilities and obligations of each Partner, and dispute management.

A shareholder is someone who owns a share in a company. In return for its investment, the shareholder receives a range of rights such as the right to vote at shareholder meetings of the company, a right to receive dividends, rights to receive company reports and announcements, etc. All companies must have at least one shareholder.

A shareholder may or may not be involved in the day-to-day running of a company, this depends if the shareholder is also a director of the company who is responsible for managing the company.

There are fundamental differences between a partnership and a company, its legal risks and tax implications. Contact us if you need legal advice on the best structure for your business. Our lawyers can help you draft a legally binding Partnership Agreement or Shareholders Agreement.

Phone: (08) 9321 9395

Email: info@westperthlegal.com.au

Disclaimer: the content of this article is provided as general information only and does not constitute legal or other advice on any specific matter and should not be relied upon as such. If you are seeking or require legal advice, please contact our lawyers.