Introduction

A well-structured partnership agreement is crucial for defining the rights, responsibilities, and obligations of partners in a business. In Egypt, while partners relations are regulated under several laws, the terms of a partnership are largely governed by the agreement between the partners. Without a comprehensive partnership agreement, disputes can arise, leading to financial and legal complications.

This article highlights the most important clauses that must be carefully drafted in any partnership agreement to ensure clarity, prevent conflicts, and protect the business interests of all partners.

Key Clauses in a Partnership Agreement

1. Definition of the Partnership’s Purpose and Activities

• Clearly state the business purpose and activities permitted under the agreement.
• Define the geographical scope and limitations of operations.
• Ensure compliance with Egyptian laws governing specific industries.

2. Partners’ Contributions and Ownership Structure

• Specify each partner’s capital contribution (cash, assets, services).
• Clarify whether additional contributions are required over time.
• Establish the ownership percentage of each partner.

3. Distribution of Profits and Losses

• Define how profits and losses will be shared among partners.
• Address whether profit distributions will be made periodically or reinvested in the business.
• Specify tax obligations and each partner’s responsibility in meeting them.

4. Decision-Making and Management Authority

• Establish whether decision-making is based on majority vote, unanimous consent, or designated authority.
• Define each partner’s role and whether specific partners have management authority.
• Address restrictions on individual partners making unilateral decisions that bind the partnership.

5. Financial and Banking Arrangements

• Specify how the partnership’s bank accounts will be handled.
• Define signing authority for financial transactions and contract execution.
• Address the handling of debts and liabilities incurred by the partnership.

6. Liability of Partners

• Define the extent of each partner’s liability for the partnership’s debts and obligations.
• Address indemnification in case of mismanagement or financial negligence.
• Include provisions on third-party claims and partner responsibilities in legal disputes.

7. Admission of New Partners

• Establish criteria and procedures for admitting new partners.
• Define the approval process required for new partners to enter the agreement.
• Address financial and operational contributions of incoming partners.

8. Withdrawal, Resignation, and Partner Exit

• Outline the process for a partner voluntarily leaving the partnership.
• Establish the financial settlement upon a partner’s exit.
• Define restrictions on former partners, such as non-compete obligations.

9. Transfer of Partnership Interests

• Specify whether partners can transfer or sell their shares in the partnership.
• Address the right of first refusal, allowing existing partners to purchase the exiting partner’s share before it is sold externally.
• Define the valuation method for determining the buyout price of a partner’s interest.

10. Confidentiality and Non-Compete Clause

• Include a confidentiality clause to protect business information, trade secrets, and financial data.
• Establish a non-compete obligation, restricting partners from engaging in competing businesses during and after their tenure.
• Specify the duration and scope of non-competition restrictions in compliance with Egyptian law.

11. Dispute Resolution and Governing Law

• Define a dispute resolution mechanism to avoid costly litigation.
• Consider mediation or arbitration under Egyptian Arbitration Law No. 27 of 1994.
• Specify the governing law and jurisdiction in case of legal disputes.

12. Partnership Duration and Dissolution

• State whether the partnership is for a fixed term or indefinite duration.
• Outline the procedures for dissolving the partnership, including: 
• Mutual agreement among partners.
• Financial insolvency.
• Legal violations or force majeure events.
• Define how assets and liabilities will be distributed upon dissolution.

Conclusion

A well-drafted partnership agreement protects partners from financial and legal risks while ensuring a structured and smooth business operation. By carefully defining key clauses, partners can prevent disputes, protect their investments, and clarify expectations from the outset.

At Ehab Yehia Law Firm, we specialize in drafting and reviewing partnership agreements tailored to Egyptian law and business needs. If you need legal assistance in structuring your partnership agreement, contact us today.